Philippines manufacturing activity returned to growth in May, as output and new orders rebounded after a contraction in the previous month, according to data released Monday by S&P Global.
The S&P Global Philippines Manufacturing Purchasing Managers' Index rose to 50.8 in May from 48.3 in April.
The recovery was driven by renewed growth in output and new orders, with firms citing improved domestic demand and new customer wins.
However, export demand remained weak, with new export orders falling at the sharpest pace since July 2020.
Manufacturing output expanded at the fastest pace in three months as companies responded to stronger demand.
"The latest PMI data for the Filipino manufacturing sector presented a mixed picture," Maryam Baluch, economist at S&P Global Market Intelligence, said.
"While manufacturers registered renewed growth in output and new orders, supply-chain disruption and cost pressures worsened as the Middle East conflict entered its third month," she added.
Supply-chain pressures intensified during the month, with delivery times lengthening due to shipping delays and order consolidation efforts to limit costs.
The conflict in the Middle East drove up fuel and raw material prices, pushing input cost inflation to its fastest pace since August 2022.
Manufacturers passed part of those higher costs on to customers, resulting in one of the sharpest increases in selling prices in more than three years.
Despite improved demand, firms reduced purchasing activity for a third consecutive month and cut employment at the fastest pace in two years.
"However, firms remained increasingly optimistic about the future, hoping improved demand will support output growth," Baluch said.
"Indeed, sustaining this growth will depend on how certain customers feel in the economic and geopolitical outlook."
The inflation backdrop remains challenging despite the improvement in manufacturing activity.
The Philippine central bank said inflation is likely to accelerate to between 7.1% and 7.9% in May from 7.2% in April, driven largely by higher food prices and the peso's weakness.
The central bank has signaled that further policy tightening remains on the table after raising its benchmark interest rate by 25 basis points to 4.5% in April.