MANILA – Weak global demand and the prolonged dry spell of El Niño pulled down manufacturing production in May 2015, according to the National Economic and Development Authority (NEDA).

In the Philippine Statistics Authority’s Monthly Integrated Survey of Selected Industries or MISSI, the country’s manufacturing sector contracted by 3.1 percent in May 2015 from an almost flat growth in April 2015 and from last year’s 12.7-percent growth in terms of volume. Similarly, in terms of value, the sector contracted by 7.3 percent in May 2015 from 11.4 percent growth in the same month in 2014.

“Despite this slowdown in manufacturing, businesses remain optimistic. The low inflation environment, lower oil prices, continued inflow of remittances, expected strong demand from government expenditures, and the brisk business activity in the nearing election season, will all help improve the sector’s performance in the coming months,” said NEDA Officer-in-Charge (OIC) and Deputy Director-General Emmanuel F. Esguerra.

Despite this continued downward trend of the sector’s value and volume, its three-month moving average remains at a positive position at 4.0 percent.

Also, the average capacity utilization of manufacturing firms slightly grew to 83.3 percent year-on-year, with 25.4 percent operating at full capacity (90-100%), 56.4         percent at (70-89%) and 18.2 percent operating at below (70%) capacity.

“With the proper implementation of the Competition Law and the Philippine Archipelagic Sea Lanes Act, we expect improvement in the business climate. Also, the Comprehensive Automotive Resurgence Strategy will attract much needed foreign investments and spur the growth of transport equipment sector as well as textiles, glass, rubber and plastics, electronics and other related products,” the NEDA official said.

Meanwhile, the food sub-sector took a double-digit year-on-year drop of 13.1 percent in the production and net sales value in May 2015 from last year’s 6.6 percent growth, with the sugar industry taking the brunt of the drought during the period.

Petroleum’s production and net sales value also plunged by 23 and 29 percent, respectively, in May 2015.

“On a positive note, the sub-sector is expected to make a rebound after the imminent operation of the Petron’s Bataan Refinery Master Plan 2 by the end of the second quarter. The facility will be the first to produce high value fuels in compliance with the Euro-5 standard, which will augment both local and export supplies,” said Esguerra.

Electrical machinery, the country’s top export product, also contracted in both production and net sales value and volume due to the decline in exports to China and Singapore.

“Efforts to pursue higher-value products and processes and new markets must be encouraged to maintain competitiveness and to compensate for the fragile export performance of the manufacturing sector,” said Esguerra.

He added that small and medium enterprises should be enhanced to enable them to participate in the global value chain, maximize the benefits of free trade and minimize their vulnerability to uncertainties in the global market, as well as take advantage of the upcoming ASEAN economic integration.

“Long-term measures such as reliable water supply must also be put into place to battle the possibility of another dry spell in the second half of 2015. The integration of agriculture and the manufacturing sectors, supported by efficient transport infrastructure, will be needed to spur growth,” said Esguerra, who is OIC of NEDA while Economic Planning Secretary Arsenio M. Balisacan is on official business abroad from July 3-12, 2015.