The Manufacturing Purchasing Managers Index (PMI) came in at 50 in July, at the threshold between expansion and contraction after reporting 51 in June. Despite staying in the expansionary region, which also suggests the economy could present a V-shaped recovery, there remains some level of cautiousness.

Exports’ demand is weak with the downside risk remaining high due to ongoing uncertainties on the global front. Current local manufacturers optimism comes mainly from backlogged orders and this can pose a challenge on potential sustainability unless demand remains firm and sustainable.

With the risk of a second wave on the cards, its potential impact on both exports and domestic activities remains unclear. How severe the impact of the second wave will depend on how well it can be contained and how much more can the monetary measures and fiscal support come into play.

• The Manufacturing Purchasing Managers Index (PMI) came in at 50 in July, which is the threshold between expansion and contraction after reporting 51 in June. This is the second month in a row the index is sitting at the expansionary level.
• Despite staying in the expansionary region, which also suggests the economy could present a V-shaped recovery, there remains some level of cautiousness.
• Exports’ demand is weak. The downside risk on exports remains, given the ongoing uncertainties on the global front.
• Current local manufacturers optimism comes mainly from backlogged orders. While this could keep the business momentum going for a period of time, such recovery can become unsustainable unless firm demand kicks in. For that to happen, consumer confidence needs to improve as it will help spur spending. And that would mean the need for a more stable job market and also on salaries and wages.
• With the risk of a second wave on the cards, its potential impact on both exports and domestic activities remains unclear. How severe the impact of the second wave will be depend on how well it can be contained and how much more can the monetary measures and fiscal support come into play.

Source: AmInvest Research - 4 Aug 2020