Asean’s PMI Slowed to 50.1 in March, Due to Lower Output

ASEAN manufacturing Purchasing Managers’ Index (PMI) in March slowed from 50.7 in February to 50.1 in March, the lowest level since December 2017. However, it remained above 50 for the third straight months. On a quarterly basis, the Asean PMI was slightly lower at 50.3 in 1Q18 compared with 50.4 in 4Q17, indicating continued healthy growth in the coming months. IHS Markit guided that the region’s PMI was weighed down by slower increases in output and new order volumes, inventory depletion and unchanged employment. Out of the seven countries in its survey, four registered higher PMI readings, while Malaysia, Thailand and Singapore PMIs have slowed.

Vietnam’s PMI slowed to 51.6 in March, after recording its 10-month high of 53.5 in February, but Philippines’ PMI rose to 51.5 in March from 50.8 in February. Across the region, soft demand weighed on growth of total new business, while weak expansion in production caused businesses to be cautious about hiring and inventory management. IHS Markit also stated that “ASEAN manufacturers continued to face marked increases in input costs. However, subdued demand saw limited growth of selling prices, suggesting that companies have struggled to pass on greater costs to customers, which puts pressure on profit margins.” Going forward, we believe the escalating trade tensions between US and China may slow down business sentiment in the region. Asean’s intra-regional trade and manufacturing sector growth may trend slightly lower given Asia’s extensive technology supply chains, while also being a large export market for Asia. Based on an estimate by the IMF, a 10% rise in import tariffs by the US and the rest of the world will likely drag down global trade by one percentage point and lower global GDP growth by 0.5 percentage point.

Separately, on the headline inflation front, Thailand, Philippines and Indonesia all reported higher inflation rates in March. Rise in consumption and household expenditure for non-fresh produce led to a rise in Thailand’s inflation to 0.8% yoy in March (0.4% in February), while inflation in Philippines rose to a record high of 4.3% yoy (3.8% in February), driven by higher cost of food and oil following the government’s Tax Reform for Acceleration and Inclusion (TRAIN). Meanwhile, Indonesia’s CPI accelerated to 3.4% yoy in March (3.2% in February), following decision by state-owned Pertamina to raise prices of gasoline and diesel on 25th February 2018, as well as higher prices of foodstuffs. Moving forward, despite higher inflation rate in March, we believe Bank of Thailand (BOT) will not be in a hurry to raise its policy rate this year, as inflation remains below BOT’s target range of 1-4%.

Source: Affin Hwang Research - 6 Apr 2018