Easing inflation to boost manufacturing — National Economic and Development Authority

March 11, 2019

An easing of inflationary pressures, especially on food following the recent signing of the law that modernizes the rice industry in the country, bodes well for overall manufacturing growth, the National Economic and Development Authority said as manufacturing output figures for January 2019 were released.

The Philippine Statistic Authority (PSA), in its Monthly Integrated Survey of Selected Industries (MISSI), reported that the Volume of Production Index (VoPI) and the Value of Production Index (VaPI) for January 2019 declined by 4.1 percent and 0.7 percent, respectively.

The declines in food, basic metals, non-metallic mineral products, chemical products, tobacco, fabricated metals, and machinery (except electrical), contributed to the low manufacturing output to start the year.

“Manufacturing growth outturn in January 2019 showed a moderate improvement coming from December 2018. Nevertheless, with our recent progress in agricultural policy, we can expect manufacturing to recover further. The decline in prices of rice and agricultural commodities brought about by the appreciation of peso and the increase in supply of rice imports will improve consumer outlook and prop-up domestic demand,” Socioeconomic Planning Secretary Ernesto M. Pernia said.

He added that the recent passage of the Rice Industry Modernization Law is also expected to lower the retail prices of rice, and thereby further stabilize inflation. This may result in lowering the cost of inputs for the manufacturing sector and provide opportunities for production expansion.

Meanwhile, Pernia said there are also other measures that need to be aggressively pursued in order to attract new investments and reduce the cost of expanding production capacity of existing firms.

These measures include the full implementation of the Ease of Doing Business-Efficient Government Service Delivery Act of 2018 to yield significant improvements in the business and regulatory environment across all levels of governance.

Also eyed by the economic team is the passage of the amendment to the Public Service Act to encourage competition in the air, maritime and road transport, as well as logistics services.

“The proposed amendment on the Foreign Investments Act of 1991 could be another boost to the manufacturing sector. Considered as a priority bill, it is expected to lower the employment threshold from 50 to 15 direct employees for foreigners investing US$100,000 in SMEs,” Pernia said.

Furthermore, the proposed amendments to the Retail Trade Liberalization law, will effectively reduce barriers to the entry of foreign investments by easing the equity and capitalization requirements and will contribute to the manufacturing sector covering small and medium-sized enterprises.

“These measures are vital considering that manufacturing is expected to be dampened by less optimistic business and consumer outlook in the first quarter of the year. Higher domestic oil prices, rising adjustment in electricity rates, and weather disturbances are expected to exert upward price pressures on the cost of inputs,” Pernia said.