By Justine Irish D. Tabile, Senior Reporter

Philippine factory activity slipped back into contraction in September for the first time since April, as high oil prices, weak demand and strong international competition weighed on the country's manufacturers, S&P Global data showed.

The S&P Global Philippines Manufacturing Purchasing Managers' Index (PMI), a composite gauge compiled from monthly surveys of purchasing managers across the country's factory sector, fell to 49.6 in September from 54.9 in August, marking the first reading below the 50-point threshold since April, when the index registered 48.3. A PMI figure below 50 signals a deterioration in operating conditions from the previous month, while a reading above 50 indicates improvement.

The downturn left the Philippines with the second-lowest PMI among the surveyed Southeast Asian economies, ahead of only Myanmar at 49.1. Manufacturing growth across the region eased slightly to 52.1 in September from 52.3 in August. Thailand posted the region's strongest reading at 54.3, followed by Indonesia at 52.4 and Vietnam at 51.9, while Malaysia also contracted at 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, orders and employment all dropped into contractionary territory," she added.

S&P Global attributed the sharp drop in the headline index to a renewed decline in production. Output contracted 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," the report said.

New sales registered a marginal drop, the first contraction in five months, while new export orders also declined as higher prices curbed purchases amid strong competition.

Despite the 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 US dollar on Sept. 30, weakening by 37.5 centavos from its P62.265 finish on Aug. 28. S&P Global added that "the rate of input price inflation was historically muted and the slowest for three months."

Weaker orders also helped relieve pressure on capacity, with work backlogs declining at the quickest pace since April. Smaller production requirements likewise led to slight job cuts at manufacturers, according to the report.

Firms trimmed input buying in September for the first time since May, recording reductions in both pre- and post-production inventories. At the same time, transportation delays and logistics problems stemming from higher oil prices continued to weigh on vendor performance, with lead times lengthening sharply to one of the greatest degrees in almost two years.

Manufacturers remained optimistic about output over the coming year, although confidence slipped 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.

Economists said the figures point to fading momentum in the sector. Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said the September contraction 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 remains 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.