By Justine Irish D. Tabile, Senior Reporter
PHILIPPINE FACTORY ACTIVITY sharply contracted in September for the first time since April, as weak demand, high oil prices and strong international competition weighed on manufacturers.
The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) fell to 49.6 in September from 54.9 in August. This marked the first contraction since April, when the PMI stood at 48.3.
A PMI reading below 50 shows a deterioration in operating conditions from the previous month, while a reading above 50 signals an improvement.
Manufacturing growth across Southeast Asia eased slightly to 52.1 in September from 52.3 in August.
However, the Philippines posted the second-lowest PMI reading among select Southeast Asian economies, only higher than Myanmar’s 49.1.
Thailand posted the highest PMI at 54.3 in September, followed by Indonesia at 52.4 and Vietnam at 51.9, while Malaysia contracted with a reading of 49.9.
“Filipino manufacturers reported a notable impact from high oil prices, strong international competition and weak demand during September,” said Siân Jones, principal economist at S&P Global Market Intelligence.
“Output, new orders and employment all dropped into contractionary territory,” she added.
S&P Global attributed the sharp drop in the Philippine PMI to a renewed decline in production, with output contracting in September for the first time in nine months and at its steepest pace since November 2025.
“Panelists suggested that lower production was due to reduced new order inflows and international competition,” it added.
Manufacturers also saw a marginal drop in new sales in September, the first contraction in five months, while new export orders declined as higher prices curbed purchases amid strong competition.
Despite dampened demand, firms raised their selling prices at a faster pace in September as they sought to pass higher costs on to customers.
“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,” S&P Global said.
The peso closed at P62.64 against the greenback on Sept. 30, weakening by 37.5 centavos from its P62.265 close on Aug. 28.
“The rate of input price inflation was historically muted and the slowest for three months,” it added.
Meanwhile, lower orders helped reduce pressure on capacity, leading to a decline in work backlog at the quickest pace since April. Smaller production requirements also led to slight job cuts at manufacturers, S&P Global said.
Manufacturers also cut input buying in September for the first time since May, with firms recording reductions in both pre- and post-production inventories.
Meanwhile, transportation delays and logistics issues stemming from higher oil prices continued to weigh on vendor performance, with lead times lengthening sharply and to one of the greatest degrees in almost two years.
Manufacturers remained optimistic about output over the coming year, although confidence weakened to an eight-month low as concerns over pricing power and international competition weighed on expectations.
“Manufacturing firms were less certain in the year-ahead outlook, meanwhile, due to concerns regarding pricing power against international competition,” Ms. Jones said.
“The viability of continuing to absorb hikes in costs will be an important consideration in the coming months in bids to drive customer demand,” she added.
Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said that the contraction in September reflected “softer demand, declining orders, lower output, and increased cost pressures from higher oil prices and exchange-rate movements.”
“While this may temper overall economic growth, the broader economy remains supported by domestic consumption, remittances, and services activity,” he said in a Viber message.
“Looking ahead, a recovery in manufacturing will depend on an improvement in demand conditions, more stable input costs, and a better external trade environment,” he added.
Ser Percival K. Peña-Reyes, a senior research fellow at the Ateneo Center for Economic Research and Development, said the September PMI signals “a clear loss of manufacturing momentum at the end of the third quarter.”
“Falling below 50, alongside the sharpest output decline since November 2025, points to weaker demand and new orders. This could weigh on third- or fourth-quarter growth, particularly if weakness spreads to employment and investment,” he said via Facebook Messenger.
Mr. Peña-Reyes said a recovery remains possible in the coming months, although the outlook is still cautious.
“Lower oil prices, stronger domestic demand, improved export orders, easing cost pressures, and better global electronics demand could support a rebound. Conversely, high energy costs, peso weakness, and intense international competition remain key risks,” he added.