ASEAN Manufacturing PMI Fell From 50.7 in February to 50.1 in March

Malaysia’s manufacturing Purchasing Managers’ Index (PMI) fell to 49.5 in March, the lowest level in five months (49.9 in February). This was also the second consecutive decline below the 50-level threshold. According to IHS Markit, the production level fell in March for the first time in eight months due to lower order book volumes. It was reported that there has been a decline in new business placed at Malaysian manufacturing firms, as the international markets are starting to face weak underlying demand.

This was also reflected in new export orders, which declined for the second consecutive month. IHS Markit also highlighted that there was evidence of ongoing spare operating capacity, as outstanding business continued to decline for the tenth straight month. Firms continue to decrease their purchase of pre-inventory level, as the input level remains in a declining trend for the fourth consecutive month. On the price front, firms continue to face higher input costs, which experienced the sharpest increase for the year in March due to an increase in raw-material prices. Manufacturers passed through the higher input costs to customers, leading to an increase in the average selling price in March. However, IHS Markit noted that factory gate charges only increased at a modest pace, reflecting that the firms’ margins remained under pressure.

Similarly, the ASEAN manufacturing PMI fell from 50.7 in February to 50.1 in March, with Malaysia, Thailand and Singapore trending below the 50-level threshold. There are some downside risks externally, especially the rising trade tensions between the US and China, leading to a possible global trade war, which may affect negatively Asean’s production activities and export of manufactured goods in 2018.

On a quarterly basis, with quarterly PMI remaining at 50 in 1Q18, as well as sustained momentum in the global manufacturing PMI, we forecast Malaysia’s real GDP growth to expand at around 5.5-5.7% yoy in 1Q18 (vs. 5.9% in 4Q17). However, Malaysia’s real GDP growth will likely to be at the lower end of BNM’s official forecast of between 5.5-6.0% for 2018, in view of the high base effect last year, as well as manufacturers expecting lower demand and production activity in 2H18, due to uncertainty from rising trade protectionism. Despite the uncertainty, we believe domestic manufacturers will likely still benefit from export orders from abroad, especially in the electronics and electrical (E&E) sector.

Source: Affin Hwang Research - 3 Apr 2018