Philippine manufacturing has declined sharply in September, following the Middle East crisis, higher costs and rain.
Middle East Crisis and Rain, the Villains of the Economy
The Middle East Crisis has shocked the global economy in the months following U.S.’s declaration of war on Iran. Since then, the Strait of Hormuz had been blocked, critical infrastructure damaged, and other countries in the vicinity waged retaliation efforts. This has affected the oil prices across all countries—especially those dependent on oil from the region. For context, the Strait of Hormuz allows passage for 20-25% of the global oil demand. And in the Philippines, this has been felt by increasing fuel prices, energy costs, price of goods, and so on.
It is not just the motorists that have been affected by oil prices, but the end consumer. All sectors of the industry rely on energy; and thus, it has trickled down to businesses, consumers, commuters, public vehicle drivers, and every Filipino. In fact, the crisis’s impact has lowered the purchasing power of consumers—the logistics chain and production facilities pass on the increased cost down to the end customer. This is one of the key factors behind the sharp decline in manufacturing; where consumers spend less, creating a lower demand for products.
There is another key factor: rain. Rain has produced lower output and increased costs in produce and fish, marked by the difficulty in cultivating and transporting goods. With the increased frequency and intensity of rain, the weather seems to play a bigger factor than previously thought.
Higher Costs for the Filipino
Costs of goods have increased by 7 percent in September, driving the cost of living higher. Whether it is apples or oranges, fuel, meat, fish, dairy, electricity, services, every category has been afflicted. For the Filipino, a 7 percent increase, on a 20,000-peso budget, means a 1,400 peso increase in cost of living. This may seem small, but that buys a week’s worth of groceries for most; gas for some, and electricity for households. Moreover, salaries have not increased at the same pace to reflect the 7% increase in the cost of goods.
People are then forced to spend less to make up for the deficit. And this brings the conversation to the crux of the problem: how can one sustain the economy of production if people are more wary of spending in a time of increasing costs?
Manufacturing Slump in the Local Industry; Outlook for Jobs and Consumer Goods
From the headwinds of the oil crisis and increased cost of goods, S&P Global lowers the Purchasing Power Index of Filipinos to 49.6, marking the first deterioration since April when the fallout of the Middle East war peaked. This is lower than the average ASEAN PMI of 52.1
This has led to job cuts in manufacturing warehouses, lowered inventory, among others. Manufacturers have a bleak outlook. Sian Jones, principal economist at S&P Global, says that “Manufacturing firms were less certain in the year-ahead outlook, meanwhile, due to concerns regarding pricing power against international competition. The viability of continuing to absorb hikes in costs will be an important consideration in the coming months in bids to drive customer demand.”
Jones added: “The sharper hike in selling prices came despite a softer uptick in input costs. Greater operating expenses were linked to unfavorable exchange rate movements against the US dollar and higher oil prices”
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