• Most ASEAN nations' manufacturing sectors stagnated, while Vietnam saw a rebound
   
• Malaysia's PMI remained at 49.5 in October
   
• Inflation pressures eased in most ASEAN nations


• China manufacturing activity surged as stimulus measures take effect

OVERVIEW

Most ASEAN countries experienced stagnation in their manufacturing sector, except for Vietnam, which bounced back to growth in October; Indonesia (Oct: 49.2; Sep: 49.2), Malaysia (Oct: 49.5; Sep: 49.5), Thai (Oct: 50.0; Sep: 50.4) and Vietnam (Oct: 51.2; Sep: 47.3).

In October, Indonesia's manufacturing sector saw slight declines in production, new orders, and employment, with easing cost inflation. Yet, firms are hopeful for improved conditions and expansion in the coming months. Meanwhile Thailand's manufacturing stagnated at the start of 4Q24, with weak growth in output and employment alongside a decline in new orders amid ongoing destocking. Inflation pressures remained low, driven by falling input prices and stable output prices. Conversely, October data showed that Vietnam's recovery from Typhoon Yagi's disruption has begun, with firms reporting increases in new orders and production. Despite ongoing challenges, growth is expected to accelerate as more manufacturers achieve full capacity by year-end. Overall, most ASEAN nations experienced muted domestic activity and declining export demand, with easing inflation pressures, though some saw slight increases from higher raw material costs, unfavorable exchange rates, and rising transport expenses.

China's stimulus package boosts manufacturing. Both the official and Caixin PMIs showed that manufacturing activity has rebounded strongly in October. China's Caixin manufacturing PMI rose to 50.3 in October (Sep: 49.3). Growth in supply and demand, price increases, and proactive inventory replenishment were observed, though weak external demand and declining employment remained concerns. Similarly, the National Bureau of Statistics (NBS) showed manufacturing PMI improved to 50.1 in October, up from 49.8 the previous month, marking the first expansion in factory activity since April and meeting market expectations. Within the official manufacturing PMI, production (Oct: 52.0; Sep: 51.2) and new orders (Oct: 50.0; Sep: 49.9) improved and were in expansion. In late September, China's Politburo addressed economic challenges and introduced new policies. Recent data show stabilized demand and improved optimism, but the labor market remains pressured and price levels subdued. Monitoring these policies is vital for boosting domestic demand and achieving China's 2024 growth target, which depends on increasing household disposable income.

ANALYSIS: MALAYSIA OCTOBER MANUFACTURING PMI

In October, Malaysia's manufacturing sector remained muted as the fourth quarter began. Despite a renewed increase in new order intakes, production volumes were reduced more significantly than in September. The PMI remained unchanged at 49.5 (Sep: 49.5) and below the neutral level for the fifth straight month, indicating a slight softening in business conditions. While ongoing muted conditions were noted, the rate of decline was only fractional. On a positive note, new orders increased for the first time since June, albeit at a marginal pace, as demand generally remains subdued. International demand showed promise with a seventh consecutive increase in new export orders, and easing cost inflation allowed firms to raise selling prices at the slowest rate since May.

OUTLOOK

Manufacturing conditions are expected to remain stable at the start of 4Q24 as firms are hopeful that the recent increase in orders will persist, potentially driving a recovery in production levels and enhancing upcoming official data. The PMI held at 49.5 in October, indicating a slight softening in business conditions. Recovery prospects are encouraging, bolstered by stable domestic demand, modest net export gains, and a global semiconductor recovery, highlighted by a 10.4% increase in electrical and electronics (E&E) product sales in August (Jul: 8.2%) and a 20.6% rise in global semiconductor sales for the same month. Growth in the manufacturing sector will be further aided by the global surge in demand for Artificial intelligence (AI) adoption. This trend, combined with domestic measures as announced in Budget 2025's initiatives to raise household income, such as increasing the minimum wage, government servant salaries, and cash transfers, are expected to drive consumer spending and boost demand. Overall, we remain cautiously optimistic about the manufacturing sector regaining traction by yearend, with steady growth driven primarily by the technology upcycle and various stimulus measures in China. Domestic demand is supported by EPF withdrawals, increasing tourism, and a stable labor market, although risks from geopolitical conflicts and trade tensions remain.

Source: BIMB Securities Research - 1 Nov 2024