• Most ASEAN nations showed sustained growth, except for Indonesia
   
• Malaysia's PMI maintained at 49.7 in August
   
• Inflation pressures softened in most ASEAN nations

• Mixed signals from China’s manufacturing underscore the need for stronger policy support

OVERVIEW

Most ASEAN nations sustained their manufacturing sector performance, except for Indonesia, which saw a further decline in August; Malaysia (Aug: 49.7; Jul: 49.7), Philippines (Aug: 51.2; Jul: 51.2), Thai (Jul: 52.0; Jul: 52.8) and Indonesia (Aug: 48.9; Jul: 49.3).

The Filipino manufacturing sector showed modest gains with increased output and orders but declining employment and buying activity. Confidence fell to a fourmonth low, indicating softer growth expectations. Thailand's manufacturing improved in August, with new orders, output, and employment rising. The sector is on track for its best quarter since 2Q23, with increased profitability from falling input prices and higher output prices. Conversely, Indonesia’s manufacturing downturn deepened in August, with significant drops in new orders and output. Firms cut jobs temporarily, showing some confidence in future recovery. Input prices rose amid global shipping issues, but inflation eased to a ten-month low. Overall, most ASEAN nations faced subdued domestic and weaker export demand. Inflation pressures eased in most ASEAN nations, though some experienced accelerated inflation due to rising raw material prices, especially imports affected by exchange rate weakness.

China's Caixin manufacturing PMI returned to expansion, signaling market improvement with stable supply and demand (Aug: 50.4; Jul: 49.8). Yet, issues persist with weak domestic demand, uncertain external demand, and low market optimism. Contrarily, the National Bureau of Statistics (NBS) reported China's manufacturing contracted for the fourth consecutive month in August, marking the steepest decline since February (Aug: 49.1; Jul: 49.4). The drop was attributed to extreme weather, off-season production, insufficient demand, and commodity price fluctuations. Looking ahead, there is room for fiscal and monetary policy adjustments. China must urgently strengthen policy support and ensure the effective implementation of prior measures.

ANALYSIS: MALAYSIA AUGUST MANUFACTURING PMI

In August, demand conditions in Malaysia’s manufacturing sector remained subdued, with production and new order inflows moderating slightly midway through 3Q24. The latest PMI data indicates that GDP growth is roughly at the same rate as in the second quarter and shows modest YoY improvements in official manufacturing production figures. Malaysia's PMI remained at 49.7 (Jul: 49.7), showing a slight downturn in the manufacturing sector. However, additional evidence indicates that conditions are likely to stay subdued in the near term. Firms are focusing on existing orders due to stagnant new order growth and are reducing purchases, employment, and inventory levels. On the price front, input price inflation surged in August to its highest level since September 2022, resulting in the most notable increase in output charges in 23 months.

OUTLOOK

Firms were generally confident about improved output in the coming year, with solid overall optimism. However, they remained uncertain about the recovery's pace, noting downside risks tied to a slow global economy. Malaysia's PMI remained at 49.7 in August (July: 49.7), indicating a slight downturn in the manufacturing sector. However, demand conditions in international markets improved for the fifth consecutive month. Despite a slight downturn in the manufacturing sector in mid 3Q24, recovery hopes persist due to steady domestic demand and modest gains in net exports, supported by the global semiconductor recovery. Further, sustained growth in E&E product sales (Jun: 7.1%; May: 12.2%) and an 18.3% rise in global semiconductor sales in 2Q24 support expectations for a semiconductor industry rebound in 2H24. This outlook is reinforced by a recovering export sector, driven by a technology upcycle and increased investment, though domestic manufacturing has slowed recently. Growth should remain steady, supported by EPF withdrawals, rising tourism, and a stable labour market, but risks from geopolitical conflicts and trade tensions persist.

Source: BIMB Securities Research - 3 Sept 2024