The headline manufacturing PMI in August showed that sector activities slowed down slightly to 49.3 versus 50 in July – a slip from the threshold between expansion and contraction. Weak foreign demand remained the key source of moderation in business activities in August with heightened efforts by firms to reduce staffing levels.

All in all, the manufacturing sector is moving towards stabilization with key indicators such as output and new order much higher than the peak of Covid-19 pandemic in April and May. However, the ramification from the ongoing stringency measures and lower demand from overseas market and concerns over the second wave risk continued to limit the performance of the sector. Hence, caution is still warranted in assessing the likely production trend.

• The headline manufacturing PMI in August showed that sector activities slowed down slightly to 49.3 versus 50 in July – a slip from the threshold between expansion and contraction. Still, the first two months average of third quarter sits at 49.7 compared to 42.6 in 2Q2020. This implies that the worst is behind us.

• Weak foreign demand remained the key source of moderation in business activities in August amidst ongoing restrictions in a number of export markets. At the same time, the lack of capacity pressure in the manufacturing sector, as well as heightened efforts to reduce costs led firms to scale back employment. As a result, staffing levels fell to the lowest since the survey began in July 2012, which in our view bodes ill for a quick domestic demand recovery.

• Besides, firms continued to face shortages of material and matters regarding imported goods due to the ongoing supply chain disruption albeit some signs of easing pressure. Nevertheless, the impact of raw material shortages was notably reflected in our intermediate and capital goods imports, down 17.3% y/y and -19.7% y/y, respectively in July.

• Nevertheless, the softer momentum in the manufacturing sector resonated among some of Asean peers as well – includeing Vietnam (45.7); and the Philippines (47.3). In contrast, Thailand and Indonesia reported an improved in their operating conditions at 50 and 50.8, respectively.

• All in all, the manufacturing sector is moving towards stabilization with key indicators such as output and new order much higher than the peak of Covid-19 pandemic in April and May. However, the ramification from the ongoing stringency measures and lower demand from overseas market and concerns over the second wave risk continued to limit the performance of the sector. Hence, caution is still warranted in assessing the likely production trend.

Source: AmInvest Research - 2 Sept 2020