Asean’s Manufacturing PMI Slowed From 51.4 in May to 51 in June

Malaysia’s manufacturing Purchasing Managers’ Index (PMI) rose by 1.9 points to 49.5 in June, but still remained below 50-threshold mark for the seven consecutive months. However, on a quarterly basis, the PMI fell from 50 in 1Q18 to 48.6 in 2Q18, its lowest quarterly level since 4Q16. The improvement in June’s manufacturing PMI was due to a marginal increase in job creation and softer decline in output. However, other subcomponent indicators, including output, suppliers’ delivery times and stocks of purchases, still trended lower compared to the previous month.

In Asean countries, the region manufacturing PMI slowed from an expansion level of 51.4 in May to 51 in June, with a largely broad-based upturn, where five of the seven countries indicating an improvement in manufacturing conditions, but slower compared to six countries in May. This was led by Vietnam in the ASEAN manufacturing PMI rankings, followed by Singapore and Philippines. However, on quarterly basis, Asean manufacturing PMI recorded its highest index in four years, averaged about 51.2 in 2Q18. This was led by Vietnam (54.1), followed by Philippines (53.1), Indonesia (51.2), Singapore (51.1) and Thailand (50.3). Malaysia was the only country showing some deterioration in operating conditions and the health of its manufacturing sector.

We expect some further improvement in Malaysia’s manufacturing PMI in the months ahead. The global Purchasing Managers' Index (PMI) expanded by 53 in June, as compared to 53.1 in May, but some signs of cautiousness among global manufacturers due to the uncertainty over trade wars on the global economic outlook. In April, Malaysia’s exports rose by 14% yoy (2.2% yoy in March), driven by higher demand for manufactured goods, in particular for electrical & electronic products from overseas. Growth in Malaysia’s industrial production index (IPI) also rose from 3.1% yoy in March to 4.6% in April, with higher growth in all subcomponents, i.e., manufacturing, mining and the electricity sectors. This was despite the country’s manufacturing falling below 50 level during the period. Malaysia’s leading economic index (LEI) rose from 0.3% yoy in March to 1.4% in April, indicating that the economic momentum in the country is still stable.

We estimate Malaysia’s real GDP growth will likely grow by 5.5% yoy in 2Q18 (5.4% in 1Q18), which will be released on 16 August. For 2018, we are projecting Malaysia’s economy to expand by 5.3% yoy, as compared to 5.9% in 2017, where growth will continue to be supported by strong domestic demand, with some moderation in export performance.

Source: Affin Hwang Research - 3 Jul 2018