By Aubrey Rose A. Inosante, Reporter
THE Philippine manufacturing sector may face headwinds from increasing global trade tensions that could weaken overseas demand this year, S&P Global said.
“The key headwind for the Philippine manufacturing sector remains external uncertainties,” Jingyi Pan, economics associate director at S&P Global Market Intelligence, told BusinessWorld in an e-mailed statement on Monday.
Ms. Pan said she expects elevated global trade tensions to continue dampening overseas demand in the manufacturing sector in 2026.
The full impact of elevated US tariffs is expected to be felt by most Southeast Asian countries this year. In August 2025, the US began imposing a 19% reciprocal tariff on many goods from the Philippines, Cambodia, Malaysia, Thailand and Indonesia.
Ms. Pan noted that the Philippine purchasing managers’ index (PMI) readings from December indicated “worsening external demand compared with rising new orders from the domestic market.”
Despite the gloomy outlook, S&P Global reported that the Philippines Manufacturing PMI rebounded to 50.2 in December from a 47.4 reading in November, which was the “strongest deterioration” in over four years.
However, foreign demand worsened in December, with fewer new export orders weighing on the overall sales increase.
“The trend is similar on a global scale with various APAC (Asia-Pacific) economies expected to face similar challenges in the new year,” Ms. Pan said.
Despite recent weakness, S&P Global Market Intelligence said it sees growing potential for the Philippines’ manufacturing sector, citing rising labor costs in other markets.
“Greater focus on expanding the manufacturing base, while relieving infrastructure constraints as part of reforms, is expected to support the contribution to growth from the goods-producing sector in the medium term,” she said.
Meanwhile, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the local manufacturing industry will likely continue to have a “hard time” in 2026, though easing borrowing costs could provide some relief.
“Demand remains lackluster on many fronts. Domestically, household balance sheets are still in a fragile state, while business confidence and, by extension, their investment plans, continue to sag,” he said in an e-mailed statement on Jan. 4.
Mr. Chanco said the flood control controversy could further weigh on business confidence and hinder expansion plans in the sector.
“Indeed, but the scandal only really added insult to injury, as business confidence was already faltering before the ICI (Independent Commission for Infrastructure) was set up in September last year,” he said.
Mr. Chanco also noted that business confidence remains very sensitive to swings in the stock market, and equities have been a huge underperformer on this front for some time.
Externally, Mr. Chanco said global economic growth is projected to soften further, which would constrain export growth.
“Cyclically, at least, manufacturers should see lower borrowing costs this year, vis-a-vis 2025, especially in inflation-adjusted terms. This is at least one macro-headwind that should subside more over the coming 12 months,” he said.
OPTIMISTIC OUTLOOKMeanwhile, the Federation of Philippine Industries (FPI) remains optimistic for the manufacturing sector this year, supported by government reforms.
“We are optimistic for this year 2026, banking on the expansion and implementation of real reforms that affect businesses, together with the strengthening of initiatives like Tatak Pinoy that can build long-term resilience for the country’s manufacturing base,” FPI Chairperson Elizabeth H. Lee said in a statement on Viber.
FPI said that export growth in 2026 could provide a “stronger external tailwind,” particularly in electronics, which account for nearly half of Philippine exports.
The group said that export momentum should help sustain PMI readings above 50, signaling broader expansion in the manufacturing sector.
However, FPI noted that sustained growth will depend on resilience against climate disruptions and supply-chain shocks, as well as diversifying beyond food and electronics into mid-complexity industries such as machinery and chemicals.
In addition, FPI’s Ms. Lee said the December rebound shows Philippine manufacturing can recover quickly when demand stabilizes.
“The PMI shows we are back in positive territory — a clear sign of resilience. The challenge and opportunity now is to turn this recovery into lasting industrial strength by investing in innovation, diversification, and resilience,” she said.
The December improvement was not driven by holiday seasonality, noting the PMI is seasonally adjusted, Ms. Lee said, but rather genuine stabilization following November’s contraction.
