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NEWS UPDATES Asean Affairs         11    May 2011

Philippines manufacturing drops

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Philippines manufacturing, which led last year’s record economic expansion, fell at the start of the second quarter, marking its first contraction in a year, as surging oil prices and the slowdown in the automotive and electronics sectors began to bite, according to a survey by the Philippine Institute of Supply Managers (PISM).

An indicator of economic activity in the manufacturing sector, the purchasing managers’ index (PMI) fell 2.8 percentage points to 49.4 last month from 52.2 in March, breaching the 50-point threshold for the first time since April 2009.

An index of more than 50 represents growth in the manufacturing sector, while a reading under 50 signifies a contraction. A reading at 50 indicates no change.

All the major composite variables of PMI—new orders, production, employment, supplier deliveries and inventories—fell in April, led by production, which dropped 5.3 points.

New orders, production and employment also slipped below 50 points, while supplier deliveries and inventories remained above the threshold.

The 391 respondents attributed the decline to the Middle East crisis that resulted in higher fuel prices, the Japan earthquake and tsunami that disrupted production supply chains, among others.

Four of the 12 sectors in the manufacturing industry registered indices below the threshold such as rubber and plastic products, other non-metallic minerals, manufacture of fabricated metal products, and manufacture of motor vehicles, trailers and semi-trailers and other transport equipment.

Dr. Nick Fontanilla, president of The Asian Centre for Enterprise Development, said in an interview that feedback from respondents suggested continued downtrend with the factors pointing to a further contraction in the coming months.

“If you look at the trend in 2011, what I see would be more difficult times unlike what we predicted last year,” Fontanilla said.

“The critical factor will be the Japanese situation. Based on feedback, the supply in Japan will be very tight by May,” he said.

Automotive companies have been hit hard by the supply disruption in Japan. Mitsubishi Philippines and Toyota Motor Philippines Corp. have reduced their workweek while Ford Philippines and Isuzu Philippines Corp. implemented temporary work stoppages. Honda Cars Philippines Inc. slashed its production by half.

The Japan crisis may trigger local firms to seek alternative sources of raw materials and adjust their business decisions, which might result in a slowdown of production or cut employment to bring down costs, Fontanilla said.

About 57 percent of the respondents said conditions remained the same while 24 percent said conditions improved. About 19 percent said they endured a reduction in business.

The PISM also released the retail and wholesale index (RWI), which remains at a growth mode in April with a combined index above the expansion threshold of 56.1, but 1.7 index points lower than the 54.4 in March.

The RWI has stayed above the expansion threshold of 50 since February 2010. The retailer index fell to 57.1 in April from 62.6 in March, while the wholesale index grew to 55.2 last month from 53.8 in March.

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It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

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