Philippine factory growth quickens in July despite supply strains

New orders hit their fastest pace since February as inventories fell.

The Philippines’ manufacturing activity expanded at its fastest pace in five months in July as stronger demand lifted new orders and production, despite renewed pressure on supply chains and higher costs linked to the war in the Middle East.

The S&P Global Philippines Manufacturing Purchasing Managers' Index rose to 51.8 in July from 50.9 in June, marking its third consecutive monthly increase.

The reading signalled a modest improvement in manufacturing conditions and was broadly in line with the long-run average.

Manufacturers reported that stronger underlying demand and new project wins drove the fastest increase in new orders since February, whilst output also grew at its quickest pace in five months as firms responded to higher sales.

To support production, manufacturers increased purchasing activity, but supplier delivery times lengthened at the sharpest rate since December 2024 as firms cited disruption linked to the war in the Middle East.

Companies drew down both input inventories and finished goods stocks to meet stronger demand. Stocks of purchases fell after remaining broadly stable in June, whilst finished goods inventories also declined.

Input costs and output charges both increased at rates above their long-run averages during the month. Manufacturers attributed higher costs to the conflict in the Middle East and passed part of the increase on to customers through higher selling prices.

Employment declined after remaining unchanged in June, with firms attributing lower staffing levels to voluntary resignations and the decision not to replace departing workers. Backlogs of work also fell as manufacturers kept pace with production requirements.

"Manufacturers in the Philippines reported stronger demand conditions in July following the more subdued conditions seen in the second quarter," said Maryam Baluch, Economist at S&P Global Market Intelligence.

She said stronger demand drove faster growth in production and new orders, the strongest since the war in the Middle East began.

Baluch added manufacturers also increased purchasing activity to support higher production, but supply chain disruptions and renewed cost pressures led firms to draw down inventories.

“Despite the improvement in sector conditions, confidence remained historically muted. More notably, payroll numbers fell in July, suggesting that firms may need clearer signs of a sustained improvement in economic conditions before resuming hiring," she said.