Slowing Growth in Philippine Manufacturing: Opportunities in Resilient Sectors

The Philippine manufacturing sector has entered a period of deceleration, with the Value of Production Index (VaPI) growing by just 0.2% in 2024 and the Volume of Production Index (VoPI) declining by 0.9%. This slowdown reflects broader global economic headwinds, including U.S. tariffs and geopolitical uncertainties. Yet, within this broader trend, three sectors—food products, transport equipment, and electronics—are bucking the trend, driven by domestic demand, policy tailwinds, and strategic positioning in global supply chains. For investors, these industries represent underappreciated opportunities in a market where resilience often outpaces macroeconomic noise.

1. Food Products: A Domestic Demand Powerhouse

The food manufacturing sector has emerged as a standout performer, with year-on-year production growth hitting 16.4% in May 2025. This surge is fueled by robust domestic consumption, particularly in urban centers where rising middle-class incomes and a shift toward processed foods are reshaping demand. The sector's contribution to overall manufacturing growth peaked at 35.4% in March 2025, underscoring its outsized role.

Government policies are amplifying this momentum. The CREATE MORE Act (Republic Act No. 12066) has reduced corporate tax rates and offered 100% deductions on power costs, lowering operating expenses for energy-intensive food producers. Additionally, the Department of Trade and Industry (DTI) is promoting export diversification, though the sector remains heavily reliant on domestic demand.

For investors, the key question is sustainability. While U.S. tariffs and global export challenges loom, the food sector's insulation from these risks—thanks to its focus on local markets—makes it a compelling long-term bet. Companies like San Miguel Corporation (SMC) and Caltex Philippines (CPC), which dominate dairy and beverage production, are well-positioned to capitalize on this trend.

2. Transport Equipment: Infrastructure-Driven Recovery

The transport equipment sector, which includes automotive and machinery manufacturing, has shown a V-shaped recovery in 2025. Production grew by 12.6% year-on-year in May 2025, following a 3.5% contraction in March. This rebound is tied to the government's “Build, Better, More” infrastructure program, which aims to invest PHP8.8 trillion (USD158 billion) in road, rail, and port projects by 2030.

The sector's resilience is also supported by election-related activity. In the lead-up to the May 2025 midterms, demand for vehicles and construction equipment surged as political campaigns and infrastructure projects ramped up. However, post-election volatility remains a risk.

Investors should focus on companies aligned with infrastructure spending. Local automakers and suppliers, such as Toyota Philippines and Honda Philippines, benefit from both domestic demand and export markets. Additionally, the sector's exposure to green energy—such as electric vehicle (EV) manufacturing—adds a layer of long-term appeal as the Philippines targets net-zero emissions by 2050.

3. Electronics: Navigating Global Shifts

The electronics industry, particularly computer and optical product manufacturing, has been a cornerstone of Philippine exports. In May 2025, the sector's value of production index (VaPI) grew by 9.7%, driven by increased demand for semiconductors and consumer electronics. This growth is part of a broader trend as global firms shift production from China to the Philippines under U.S. “friendshoring” policies.

The CREATE MORE Act has further bolstered this sector by offering 17-year tax holidays and streamlined approvals for foreign investors. The Philippines' skilled labor force and English proficiency make it an attractive destination for downstream electronics assembly, with U.S. firms outsourcing components worth USD7.7 billion annually.

However, the sector faces headwinds. U.S. tariffs on Philippine imports, while currently capped at 10%, could rise to 25% if the country continues purchasing oil from Venezuela. This creates pricing pressures, but the WTO's Information Technology Agreement (ITA) shields high-tech goods from tariffs, offering a buffer.

Investors should prioritize companies with strong ties to global tech giants. Philippine Long Distance Telephone Company (PLDT), which is expanding its data center infrastructure, and Semiconductor Manufacturing International Corporation (SMIC), if it establishes a presence in the Philippines, could benefit from this shift.

Long-Term Investment Potential: Balancing Risks and Rewards

While these sectors are outperforming, their long-term potential depends on navigating external risks. For food products, the challenge lies in scaling exports without overexposure to U.S. tariffs. For transport equipment, the key is aligning with infrastructure timelines and green energy transitions. Electronics, meanwhile, must balance friendshoring opportunities with geopolitical volatility.

The Capital Markets Efficiency Promotion Act (CMEPA), which reduced stock transaction taxes and improved capital market liquidity, enhances the appeal of equities in these sectors. The PSEi, currently trading at a 10% discount to its five-year average P/E ratio, offers attractive entry points for investors willing to ride out short-term volatility.

Conclusion: Resilience in a Slowing Sector

The Philippine manufacturing slowdown is not a death knell for investors. Instead, it highlights the importance of sectoral differentiation. Food products, transport equipment, and electronics are not just surviving—they are adapting to a new economic reality. By leveraging domestic demand, policy incentives, and global supply chain shifts, these industries offer a roadmap for growth in an uncertain world. For those with a long-term horizon, the time to act is now.