What's Happening?
The Philippine manufacturing sector experienced a return to growth in December 2025, driven by a recovery in domestic demand. This development ended a three-month period of contraction, although the sector continues
to face challenges due to a slump in exports. The S&P Global manufacturing Purchasing Managers’ Index (PMI) rose to 50.2 in December from 47.4 in November, indicating a modest improvement in operating conditions. Economist Maryam Baluch from S&P Global Market Intelligence noted that new order volumes increased for the first time in four months, which helped ease the downturn in production. The growth in new work was the most significant since April, prompting firms to increase purchasing activity at the fastest pace since August. However, the recovery was primarily led by the domestic market, as external demand for Filipino goods continued to decline. Despite the improvement in new orders, production levels fell for the fourth consecutive month, marking the longest contraction sequence since 2021. Manufacturers managed to stabilize inventory levels and some began building post-production stocks in anticipation of higher demand in 2026.
Why It's Important?
The resurgence of the Philippine manufacturing sector is significant as it highlights the resilience of domestic demand in the face of global trade challenges. The sector's recovery is crucial for the country's economic stability, as manufacturing plays a vital role in employment and GDP contribution. The increase in new orders and purchasing activity suggests a potential for future growth, although the persistent decline in export demand poses a risk to sustained expansion. The mixed employment conditions, with some companies reducing headcount while others hire more staff, reflect the sector's ongoing struggle to balance capacity with demand. The modest rise in operating expenses due to higher material prices could impact profit margins, but the restrained increase in selling prices indicates a cautious approach by manufacturers. The sector's optimism about future output, driven by upcoming projects and business expansion plans, is tempered by concerns over declining export market conditions, which could limit broader growth.
What's Next?
Looking ahead, the sustainability of the manufacturing sector's growth will depend on the ability to further bolster demand, particularly in the domestic market. Manufacturers are optimistic about output for 2026, citing upcoming projects and business expansion plans. However, confidence levels have slightly dipped from a 12-month high recorded in November. The sector will need to navigate significant headwinds from declining export market conditions, which could hinder broader expansion. Companies may need to focus on enhancing efficiency and capacity to meet the rising domestic demand while exploring new export opportunities to mitigate the impact of global trade challenges.
