Manufacturing activity in the Philippines appeared to have slacked in January, the first month of the Tax Reform for Acceleration and Inclusion (TRAIN) law’s implementation.
This was reflected in the Nikkei Philippines Purchasing Managers’ Index (PMI), conducted by IHS Markit, which fell to 51.7 this month, the third-lowest figure in the history of the survey for the country when it was first done in January 2016.
Last December, it was at 54.2.
Still, it was viewed as growth as the survey reads points above 50 as economic expansion, while those below 50 are considered as contraction according to Nikkei Philippines.
IHS Markit principal economist Bernard Aw said in a statement that the Philippines’ manufacturing economy “started 2018 on a more modest note as demand was partially hurt by the new excise taxes”.
He was referring to the additional levies imposed by the TRAIN law on certain goods like sugar-sweetened beverages, petroleum products, and automobiles.
The heightened costs boosted inflationary pressures and negatively had an impact on purchasing of inputs.
Aw said that the “key driver” for inflation were, rather than demand, supply-side factors.
“Anecdotal evidence showed that new excise taxes, a weak exchange rate and higher global commodity prices, especially in oil, metal and plastics, all pushed inflation higher”, he added.
The survey saw that “input costs increasing sharply and at one of the fastest rates in the survey history”, urging Filipino manufacturers to heighten their selling prices “at a record pace”, according to Aw.
This increase in prices, he said, “could pose as a downside risk to future growth”.
Deceleration was noticed in indicators new orders, and output. Client demand also appeared to be weaker, thus less workers are being hired, affecting the employment indicator.
Nonetheless, Aw said that better performance is still seen in the future.
“Other survey indicators suggest firms are likely to look past the near-term slowdown toward stronger growth in the year ahead”, the economist said.
The five key indicators of the PMI are new orders, output, employment, suppliers’ delivery times, and inventories of inputs.