• Most ASEAN Members Showed Continued Improvement
   
• Malaysias PMI Recorded 49.9 in June, Indicating Stable Business Conditions Near the 50.0 Mark
   
• Inflation pressures remained stable in most ASEAN nations

• China's policy support requires further consolidation

The ASEAN manufacturing sector indicated a continued improvement in operating conditions as the headline PMI remained steady at 51.7 in June, above the neutral threshold of 50.0 and consistent with the May reading; Indonesia (Jun: 50.7; May: 52.1), Philippines (Jun: 51.3; May: 51.9), Vietnam (Jun: 54.7; May: 50.3), Thai (Jun: 51.7; May: 50.3) and Malaysia (May: 49.9; May: 50.2).

Indonesia's manufacturing sector slowed significantly with stagnant new orders and declining exports over four months. Minimal hiring and the first backlog decline in seven months suggest potential new order contraction, marking the sector's second decline since mid-2021. Filipino manufacturing grew solidly in June but faces potential output weakness ahead despite increased production and persistent job losses reflecting capacity constraints. Softened future expectations and manageable inflation pressures may support near-term demand amid rising costs. Thai manufacturing had its strongest month in a year in June, with accelerated output and record employment gains despite ongoing declines in new orders. Confidence in the 12-month outlook reached its highest level since April 2023, supported by stable input prices amid increased demand. Vietnam's manufacturing sector surged in mid-year with a rapid increase in new orders, prompting firms to hire more staff despite higher input costs.

China's Caixin manufacturing PMI indicated ongoing improvement in the sector in June (Jun: 51.8; May: 51.7), with growth in supply, domestic demand, and exports. Manufacturers expanded purchases amidst rising inventory and prices. Despite a slight easing in employment contraction, surveyed companies notably reduced their optimism, highlighting the necessity to strengthen market expectations. Conversely, the National Bureau of Statistics (NBS) reported that China's manufacturing activity experienced a second month of decline in June (Jun: 49.5; May: 49.5). Recent macroeconomic indicators reflect an ongoing economic recovery, marked by steady production, demand, employment, and prices, as well as strong export performance. Moving forward, policy support needs further consolidation. Overall, some ASEAN nations showed improving demand, while others exhibited cooling demand. Inflation pressures were stable in most ASEAN nations, but some experienced quickened inflation due to higher transportation costs, increased oil prices, and higher costs of imported items.

ANALYSIS: MALAYSIA JUNE MANUFACTURING PMI

June was predominantly stable for Malaysian manufacturers, continuing the growth observed in May. Despite an increase in new work volumes, reports indicated subdued demand, prompting manufacturers to maintain unchanged levels of output and employment. However, business confidence continued to decline. Malaysia's PMI recorded 49.9 in June, indicating stable business conditions around the 50.0 threshold. This marked a slight downturn from May's marginal improvement (May: 50.2). New orders increased for the second consecutive month, driven by sustained growth in new export orders. However, the expansion was fractional and softer than in May, reflecting muted overall demand. Manufacturers maintained stable staffing levels after a slight increase in employment during the previous survey period. Higher raw material costs and unfavorable exchange rate fluctuations drove input prices up, maintaining solid inflation levels unchanged from May. Firms also accelerated their own selling price increases to the fastest pace since September 2022.

OUTLOOK

New orders are expected to continue growing, boosting optimism about manufacturing production, despite sentiment declining for the fifth straight month in June, reaching its lowest since August 2023. Malaysian manufacturers saw stability in June following growth in May, with PMI registering 49.9, indicating stable business conditions compared to the no-change mark of 50.0. Throughout 2Q24, PMI data showed improvement, suggesting positive upcoming official releases, supported by anticipated improvements in unemployment rate and distributive trade sales growth propelled by rising tourist arrivals and spending. Also, Malaysia's trade hit its highest since October 2022, marking a fifth consecutive month of expansion, with May exports up 7.3%, driven by E&E products, palm oil, metal, optical equipment, and iron and steel products, reflecting progress towards economic targets driven by recovering external trade and domestic demand. Additionally, Malaysia's manufacturing sector experienced notable growth, with the Industrial Production Index (IPI) surging 6.1% in April (Mar: 2.4%), alongside a 5.7% increase in manufacturing sales value (Mar: 1.4%). This growth supports an optimistic outlook for Malaysia's electronics and semiconductor sectors in the latter half of 2024, despite global challenges, underpinning expectations for sustained manufacturing recovery throughout the year.

Source: BIMB Securities Research - 2 Jul 2024