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Manufacturing activity in the Philippines expanded in September, driven by resilient domestic demand and growth in new orders, S&P Global said.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) rose to 50.6 in September, a turnaround from the 49.7 contraction in August, reflecting an improvement in the health of the manufacturing sector.

“September PMI data signaled renewed growth across the Filipino manufacturing sector as new orders emerged out of contraction territory, thereby supporting a quicker expansion in output and a fresh rise in staffing levels,” Maryam Baluch, economist at S&P Global Market Intelligence, said in a statement.

A PMI reading above the 50 mark denotes improvement in operating conditions, while a reading below 50 signals deterioration.

However, Ms. Baluch noted the pace of growth is still “historically subdued,” indicating the sector remains weak.

“Moreover, latest data suggested that growth was supported by the domestic market as export sales fell for the first time in nine months,” she added.

In September, the Philippines had the second-highest PMI reading among Southeast Asian countries with available data. It was just behind Indonesia (52.3) but ahead of Myanmar (50.1). Meanwhile, Vietnam (49.7), Thailand (47.8) and Malaysia (46.8) all recorded contractions in September.

The headline PMI measures manufacturing conditions through the weighted average of five indices: new orders (30%), output (25%), employment (20%), suppliers’ delivery times (15%), and stocks of purchases (10%).

S&P Global noted the latest PMI survey data showed a renewed expansion among Filipino manufacturers at the end of the third quarter.

A modest rise in new orders was seen in September, thanks to improved demand conditions and new clients.

“However, latest data also revealed a fall in new business from abroad, thereby marking the first month of contraction in the year-to-date. Moreover, the rate of decrease was solid overall and faster than the historical average,” S&P Global said.

The increase in factory orders was mainly driven by domestic demand, with the pace of growth accelerating from the 12-month low seen in August.

S&P Global noted manufacturers also ramped up hiring in September, ending three months of job cuts. However, the pace of job creation remained “marginal,” it added.

“Despite firms seeing their business requirements rise and in turn increasing their workforce numbers, backlogs of work fell for the third month running in September, and to the greatest extent in seven months. The data thus suggested that there is still spare capacity within the sector,” S&P Global said.

Manufacturers in the Philippines also showed “diverging trends in inventory holdings” in September.

“While stocks of finished goods increased amid anticipation of greater demand in the coming months, pre-production inventories fell in September, with companies often utilizing their stocks to meet current demand requirements,” S&P Global said.

It noted that stocks were depleted at the fastest rate in nearly three years. “The fall in stocks of purchases also aligned with a stagnation in purchasing activity, thereby ending the period of expansion in input buying that began in September 2022,” it added.

The latest data also showed that cost pressures were generally subdued despite selling prices rising at the fastest pace in four months.

“Despite increasing material, fuel and supplier costs exerting pressure on operating expenses and pushing up selling prices at a faster pace, both input prices and output charges rose at historically muted rates,” Ms. Baluch said.

Manufacturing firms reported weaker sentiment for the next 12 months, although they were still generally optimistic.

“Looking ahead, sentiment slipped to a 15-month low in September and was historically muted amid some concerns of whether demand can be sustained. Nonetheless, 40% of panelists anticipate growth in output in the year ahead,” it added.

Ms. Baluch noted that global headwinds weighed on overall growth in September, with many firms concerned over the sustainability of future demand.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said that the uptick in domestic orders helped push the Philippines’ PMI back into expansion mode.

“Domestic demand helped offset slowing exports orders. Another positive was the pickup in employment as manufacturers geared up for upcoming holiday demand,” he said in a Viber message.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also noted that the improvement in output was due to the “seasonal increase in manufacturing, production, and importation activities in the third quarter in preparation for the holiday season.”

However, Mr. Ricafort noted that persistent inflation and high interest rates weighed on manufacturing firms’ operations.

Headline inflation may have settled at 5.4% in September, according to a BusinessWorld poll of 17 analysts. This is at the low end of the 5.3-6.1% forecast range of the Bangko Sentral ng Pilipinas (BSP).

The local statistics authority is set to release September inflation data on Oct. 5, Thursday.

From May 2022 to March 2023, the Monetary Board has raised rates by 425 basis points. It kept its benchmark policy rate at a near 16-year high 6.25% for four straight meetings. — By Luisa Maria Jacinta C. Jocson, Reporter

The National Government (NG) outstanding debt reached a record PHP 14.35 trillion as of end-August, mainly due to the peso depreciation against the US dollar, the Bureau of the Treasury (BTr) said on Monday.

Outstanding debt inched up by 0.7% from PHP 14.24 trillion as of end-July, data from the BTr showed.

“The PHP 105.28 billion or 0.7% increment from the previous month’s level was primarily due to the peso depreciating from PHP 54.834 to PHP 56.651 against the US dollar over the reference period,” the BTr said in a statement.

The debt stock rose by 10.2% year on year from PHP 13.02 trillion as of end-August 2022.

Year to date, outstanding debt went up by 6.9% from PHP 13.42 trillion as of end-December 2022.

More than two-thirds or 68.2% of the NG’s debt portfolio came from domestic sources, while the rest were from foreign borrowings.

As of end-August, domestic debt increased by 9.5% to PHP 9.79 trillion from PHP 8.94 trillion a year ago.

However, domestic borrowings slipped by 0.2% from PHP 9.81 trillion in July, due to “large retail bond maturities.”

“New domestic debt issued during the month totaled PHP 229.29 billion with debt redemption of PHP 253.43 billion, resulting in a net repayment of PHP 24.14 billion,” the BTr said.

“This was partially offset by the PHP 2.9-billion incremental value caused by peso depreciation on foreign currency-denominated domestic securities,” it added.

Data from the Treasury showed that the peso closed at PHP 56.651 versus the greenback as of end-August, depreciating by 3.2% from PHP 54.834 as of end-July.

In the eight months to August, the domestic debt mix consisted almost entirely of government securities.

On the other hand, external debt stood at PHP 4.56 trillion at the end of August, up by 11.8% from PHP 4.08 trillion in the same month a year ago.

Month on month, it rose by 2.9% from PHP 4.43 trillion as of end-July.

“Peso depreciation against the US dollar caused a PHP 146.85-billion upward revaluation of US dollar-denominated debt in August, although partially offset by the PHP 22.11-billion downward revaluation of the third-currency debt component,” the BTr said.

“Net availment of foreign loans also added PHP 1.78 billion to the reference month’s external debt stock,” it added.

Broken down, foreign debt consisted of PHP 2.07 trillion in loans and PHP 2.48 trillion in global bonds.

As of end August, the NG’s overall guaranteed obligations inched up by 0.9% to PHP 366.58 billion from PHP 363.4 billion as of end-July.

“The higher level of guaranteed debt is attributed to the net availment of domestic guarantees amounting to PHP 2.44 billion and the PHP 4.03-billion revaluation effect of peso depreciation on external guarantees surpassing the PHP 3.29 billion in repayments,” the BTr added.

Year on year, guaranteed debt dropped by 6.7% from PHP 392.76 billion.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the higher NG outstanding debt as of end-August was mainly due to the weaker peso.

The local currency almost breached the PHP 57-level during the month, depreciating to as low as PHP 56.84 on Aug. 15.

Mr. Ricafort said that elevated inflation and interest rates also pushed borrowings higher.

“The new record high in the outstanding National Government debt may be attributed to wider budget deficits amid higher prices that also bloated government expenditures,” he said in an e-mail.

Headline inflation spiked to 5.3% in August, the first time it accelerated in seven months. It was also the 17^th consecutive month that inflation surpassed the central bank’s 2-4% target range.

For the first eight months of 2023, inflation averaged 6.6%, still above the revised 5.8% full-year forecast of the Bangko Sentral ng Pilipinas (BSP).

The BSP has raised borrowing costs by a total of 425 basis points from May 2022 to March 2023. This brought the key policy rate to 6.25%, the highest in almost 16 years.

The NG’s debt as a share of gross domestic product (GDP) stood at 61% at the end of June. This remained above the 60% threshold considered by multilateral lenders to be manageable for developing economies.

The government aims to cut the debt-to-GDP ratio to less than 60% by 2025. — Luisa Maria Jacinta C. Jocson

The World Bank expects the Philippines to be the fastest-growing economy in Southeast Asia this year, despite trimming its gross domestic product (GDP) growth projection due to persistent inflation and global headwinds.

In its East Asia and the Pacific Economic Update released on Monday, the World Bank cut its GDP growth forecast for the Philippines to 5.6%, from the 6% projection given in June. The latest forecast is the same as the GDP outlook it gave in April.

Aaditya Mattoo, World Bank Chief Economist for East Asia and the Pacific, said the global economic slowdown is a major concern for countries like the Philippines.

“The Philippines, like other countries in the region, depends on the rest of the world for exports (of) goods and especially services. A lot of Filipinos work abroad and send remittances back. All those factors are tied to the state of the global economy,” Mr. Mattoo said during a briefing on Monday.

World Bank Senior Economist for East Asia and the Pacific Ergys Islamaj said Philippine economic growth this year will moderate from the 7.6% GDP expansion in 2022 due to elevated inflation, tighter financial conditions, and a weak external environment.

“High inflation, tight fiscal and monetary policies, budget execution delays, and subdued global growth dampened the Philippines’ growth momentum,” the World Bank said.

The Philippine economy expanded by 4.3% in the second quarter, its slowest growth in over two years. For the first half, economic growth averaged 5.3%, below the government’s 6-7% target.

Despite the lower growth projection, the World Bank expects the Philippines to post the fastest expansion among Southeast Asian countries this year. At 5.6%, this is also above the 5% GDP growth average for East Asia and the Pacific.

Philippine growth will likely outpace Cambodia (5.5%), Indonesia (5%), Vietnam (4.7%), Malaysia (3.9%), Laos (3.7%), Thailand (3.4%), and Myanmar (3%).

At the same time, the World Bank trimmed its growth forecast for the Philippines to 5.8% for 2024 from 5.9% previously. This was below the government’s 6.5-8% target for next year.

If realized, the Philippines would be the second-fastest growing economy in Southeast Asia in 2024, behind only Cambodia’s 6.1%.

According to the World Bank, Philippine GDP growth is also projected to average 5.7% from 2023 through 2025.

“The good news for the Philippines, I should say, is that we expect economic activity to be supported by domestic demand, led by private consumption and declining inflation,” Mr. Mattoo said.

Recent economic reforms like the amended Public Service Act (PSA) would help ramp up investments, he added.

The amended PSA, which took effect in April, allows full foreign ownership in more public services such as telecommunications, airlines, and railways.

Inflation
In its Macro Poverty Outlook analysis, the World Bank projects Philippine inflation to average 5.9% this year, before easing to 3.6% in 2024.

Both forecasts are a tad higher than the  Bangko Sentral ng Pilipinas’ (BSP) 5.8% and 3.5% projections for 2023 and 2024, respectively.

“Inflation will increase marginally in 2023 due to the materialization of risks to food inflation, before returning to within the target range in 2024 amid improvements in food supply and lower global commodity prices,” the World Bank said.

The World Bank also sees inflation further easing to 3% by 2025, below the 3.4% estimate of the BSP.

“In the near term, essential factors for boosting growth include containing price pressures and improving budget utilization,” the World Bank added.

Meanwhile, the World Bank also urged economies to take advantage of opportunities in the services sector, which will be central to the region’s development.

“Services now account for at least about half of employment and value added in most East Asia and the Pacific economies,” Mr. Mattoo said.

In the Philippines, Mr. Mattoo said that service-oriented firms are more likely to use digital technologies if they are foreign-owned and especially if they have access to fiber broadband.

“The services firms that adopt these technologies have seen a big increase in productivity,” he added.

The World Bank recommended promoting reforms to pursue liberalization and regulation of services trade; address the infrastructure and skill gaps; and maximize cooperative international action. — Luisa Maria Jacinta C. Jocson

Inflation likely quickened in September due to pump price hikes, higher electricity rates, and the peso depreciation against the dollar, analysts said.

A BusinessWorld poll of 17 analysts yielded a median estimate of 5.4% for September inflation, at the low end of the 5.3-6.1% forecast of the Bangko Sentral ng Pilipinas (BSP).

If realized, September inflation would be  slightly faster than the 5.3% print in August, but lower than 6.9% in the same month in 2022. It would also be the highest print in four months or since 6.1% in June.

Inflation in September will likely breach the central bank’s 2-4% target range for the 18^th straight month.

The Philippine Statistics Authority (PSA) is scheduled to release the latest consumer price index (CPI) data on Oct. 5 (Thursday).

“Higher prices of fuel, electricity, and key agricultural commodities, as well as the peso depreciation are the primary sources of upward price pressures in September,” the BSP said in a statement on Friday.    

“Meanwhile, lower rice and meat prices could contribute to downward price pressures for the month,” it added.     

In September alone, oil companies raised pump prices for gasoline by PHP 2.50 per liter, diesel by PHP 3.90 per liter, and kerosene by PHP 0.80 per liter.

Customers of Manila Electric Co. (Meralco) saw higher electricity bills in September after the overall rate went up by PHP 0.5006 per kilowatt-hour (kWh) to PHP 11.3997 per kWh.   

HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris Dacanay said electricity rates rose more than 4% in September, reflecting the higher energy import bill due to the depreciation of the peso against the dollar.

The peso finished trading at PHP 56.575 per dollar on Friday, gaining 40.5 centavos from its previous close of PHP 56.98. In September alone, the peso has slightly strengthened by two centavos or 0.03% from its Aug. 31 finish of PHP 56.595.

However, China Banking Corp. Chief Economist Domini S. Velasquez said higher electricity rates from Meralco may have been offset by lower rates in other provinces like Batangas, Pampanga, and Bohol.

She noted that prices of fish and fruits remained elevated last month and increases in cooking gas prices may have also added to upward inflationary pressures in September. 

Cooking gas prices rose by PHP 6.65 per kilogram in September, marking the second straight month of price hikes.

“On a positive note, rice and vegetable prices, which were the primary drivers of food inflation in August, eased due to the mandated rice price cap and relatively favorable weather (i.e., no strong typhoons this month),” Ms. Velasquez said.

Sarah Tan, an economist from Moody’s Analytics, noted that rice prices have cooled due to the imposition of a price ceiling in early September. The spike in rice prices was one of the main drivers of inflation in August.

“Notably, the average price of locally produced regular milled rice in Metro Manila has fallen about 20% from its end-August peak,” Ms. Tan said.

Starting Sept. 5, the Marcos administration imposed a price ceiling of PHP 41 per kilo for regular milled rice and PHP 45 per kilo for well-milled rice.

Meanwhile, core inflation may have settled at 5.9% in September, Ms. Velasquez said.

If realized, this would be lower than the 6.1% print in August. It would also be the first-time core inflation fell below the 6% level since the 5.9% print in October 2022. 

“We won’t be surprised if higher oil prices have spilled over to core (inflation) already,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said.

For the rest of the year, ANZ Research economist Debalika Sarkar said global oil prices may remain elevated amid tight supply.

“While some effort has been made to stabilize domestic food prices, domestic retail pump prices continue to adjust to global oil price movements,” she said. “The low oil inventory also implies a faster pass-through in the absence of adequate fiscal controls.” 

Ms. Sarkar said another round of transport fare hikes, which may be implemented in November, could further add upward pressure on inflation.

“Overall, we do not see the monthly inflation print falling back below 4% year on year this year,” she said.

The BSP earlier said it still sees inflation falling within the 2-4% target in November, but raised its average inflation forecast for 2023 to 5.8% (from 5.6% previously).

Philippine National Bank economist Alvin Joseph A. Arogo said it is still possible for the headline print to fall within the target by fourth quarter if inflation will not accelerate past 5.5% in September.

“However, the risk to this view is elevated due to El Niño, typhoons, oil production cuts, and prolonged Russia-Ukraine war,” Mr. Arogo said.

On the other hand, Patrick M. Ella, economist at Sun Life Investment Management and Trust Corp., said inflation may return to the 2-4% target range by the first quarter next year instead, and not in the fourth quarter as previously expected.

A surge in consumer spending ahead of the holiday season in the fourth quarter may put the 2-4% target range out of reach, Colegio de San Juan de Letran Graduate School Associate Professor Emmanuel J. Lopez said.

Barring any new shocks, Ms. Velasquez said inflation is still on track to return to the 2-4% target band in the fourth quarter.

“Hence, we think that the BSP can still keep its policy rate on hold at 6.25% this year, especially if third-quarter GDP (gross domestic product) comes out weaker than anticipated,” she said.

The PSA will release the third-quarter GDP data on Nov. 9.

The Monetary Board has kept its key interest rate at 6.25% for a fourth straight meeting last month. This was after it hiked policy rates by 425 basis points from May 2022 to March 2023.

Ms. Velasquez noted that recent supply shocks to inflation could be addressed by non-monetary measures.

“However, we are cognizant that another rate hike in November is a live possibility if the peso weakens further given another Fed rate hike,” she added.

The US Federal Reserve earlier signaled it would keep rates higher for longer, even as it opted to keep the target Fed funds rate unchanged at 5.25-5.5% at its meeting last month.

The Fed’s next meeting is from Oct. 31 to Nov. 1, while the BSP is scheduled to discuss policy on Nov. 16. — Keisha B. Ta-asan, Reporter

The Asian Development Bank (ADB) is allocating as much as USD 4 billion worth of loan financing for the Philippines annually starting next year through 2029 to support its development projects.

ADB Country Director for the Philippines Pavit Ramachandran said the multilateral lender is looking to earmark between USD 3.5 billion and USD 4 billion for the lending program in 2024.

“This year, we’re looking at about anywhere from USD 3.5 billion to USD 4 billion in terms of our lending. Next year, we expect a similar allocation and a lot of this is on infrastructure, not only urban mobility and connectivity, but also flood resilience,” he told reporters on the sidelines of a forum last week.

For next year’s lending program, Mr. Ramachandran said they already know which projects will be included.

“We just have to lock in the exact amounts and timelines with the government,” he added.

Mr. Ramachandran said the USD 3.5 billion to USD 4 billion range would likely be the earmarked lending program per year under the ADB’s new Country Partnership Strategy (CPS) from 2024 to 2029.

“I think we’re looking at that being the lending. It’s also consistent with what we’ve been doing now for the last two or three years, because these are large, complex infrastructure projects but also some budget support mixed in on some strategic areas. That will be about 30% of the overall program, the share of budget support (then) the remainder will be largely project investments,” he said.

The ADB is currently working on its CPS 2024-2029 for the Philippines. The current partnership strategy for 2018-2023 focuses on “policy reforms, institutional capacity development, and financing investments that promote high and inclusive growth.”

Mr. Ramachandran said the new CPS will likely be released by the second half of 2024, adding that consultations are currently ongoing.

The CPS will also have a strong focus on climate change and social protection.

“There will be a climate resilient infrastructure pillar, this is very much aligned with the flagship projects. We are supporting the preparation and development of a number of these on urban mobility, flood resilience, and connectivity,” Mr. Ramachandran said.

He said the ADB is supporting the Philippines’ transition to upper middle-income country by investing in health, education and social protection projects.

“We’re really trying to ramp up private sector engagement, both PPPs (public-private partnerships) which are very much part of the government’s agenda as well, in terms of delivery of infrastructure programs, but also dedicated private sector investment in green energy, digital development, and affordable housing,” Mr. Ramachandran said.

The ADB’s 2023 lending program is focused on eight projects and programs, four of which are policy-based loans aimed to support post-pandemic business recovery, reforms in the agriculture sector, and inclusive finance.

Before the end of the year, Mr. Ramachandran said he is hopeful that the $1.95-billion loan for the Bataan-Cavite Interlink Bridge Project will be approved by the ADB board.

“We are making good progress with it, one of the projects is of course the Bataan-Cavite interlink bridge over Manila Bay… we are trying to have it approved, it’s on a tight timeline,” he said.

Data from the ADB showed that the 32-kilometer bridge will “provide a permanent road link between the provinces of Bataan and Cavite, the key missing link in the road network of the National Capital Region, Central Luzon and Calabarzon regions.”

Mr. Ramachandran also noted that the ADB is working on supporting the government’s 197 infrastructure flagship projects (IFPs).

Meanwhile, the World Bank approved USD 600 million worth of financing for the Philippines to support the government’s digitalization efforts.

The multilateral lender said the country’s first Digital Transformation Development Policy Loan aims to support digital infrastructure policies, expand financial inclusion and boost growth of digital services.

“Greater adoption of digital technology can improve the efficiency and transparency of government services, empowering individuals who were previously far away from decision-making centers,” Ndiamé Diop, World Bank country director for the Philippines, said in a statement. — Luisa Maria Jacinta C. Jocson