Philippine manufacturing activity is projected to maintain its expansion in the coming months as global oil prices ease, though economists caution that emerging risks could temper growth.
The manufacturing sector posted a purchasing managers’ index reading of 50.9 in June, up slightly from 50.8 in May, marking a second consecutive month of expansion. A reading above 50 indicates improving operating conditions, while a figure below that threshold signals contraction.
Economists attribute the continued uptick to softer global oil prices, which have allowed firms to normalize operations after depleting inventories built up during earlier price spikes. Manufacturing and purchasing activity has been steadily ramping up as a result.
One economist expects further improvement in the second half of the year as business and household confidence strengthens. The oil refining and consumer goods sectors are seen as the primary drivers of factory activity in the months ahead.
Consumers are likely to reorient spending toward the traditional fourth-quarter holiday rush, while elevated domestic pump prices are expected to incentivize greater refining activity. This assumes no major economic shocks materialize.
However, renewed tensions in the Middle East pose a significant threat to the recovery. The closure of the Strait of Hormuz, through which a fifth of global oil and gas shipments pass, has raised fears of supply disruptions and higher energy costs.
The Philippines remains under a one-year state of national energy emergency until March 2027, enacted as soaring global oil prices weighed on economic activity. Unresolved conflict near the strait could prolong volatility.
A looming El Niño weather event adds another layer of risk. State forecasters predict a strong episode from September to November, potentially intensifying into a very strong one by October.
Severe weather could damage agro-industry supply chains, particularly for manufacturers reliant on agricultural inputs. Historical data from the 1998 El Niño shows both agriculture and industry posted annual declines during that period.
Another economist offered a cautiously optimistic outlook, citing easing inflation, resilient consumer spending, infrastructure projects, and improving business sentiment. Domestic demand is expected to remain the primary growth engine for food, beverage, consumer goods, and construction-related industries.
Still, softer global demand, trade uncertainties, geopolitical tensions, and volatile energy costs could moderate the pace of expansion. The sector is likely to grow steadily as long as domestic conditions stay supportive.
A separate economist urged caution in interpreting the latest figures, noting the June reading was only marginally above the neutral 50 mark. Still-soft export orders and cautious forward expectations suggest tentative stabilization rather than a firm growth trend.
Manufacturing remains improving but fragile, pressured by a recently approved dual-tranche wage hike in the National Capital Region and persistent core inflation. The minimum daily wage will rise by P60 in July and a further P25 in January 2027.
Core inflation, which excludes volatile food and fuel prices, climbed to a 31-month high of 4.4% in June even as headline inflation eased to 6.4%. Production costs continue to face upward pressure from both wages and underlying price trends.
Factory output growth slowed in May, with the volume of production index rising 10.2% year on year. While this reversed a contraction in the same month a year earlier, it fell short of April’s revised 11.7% expansion amid weaker transport equipment, food, and chemical output.
