However Manufacturing Conditions in ASEAN Slowed in September

Malaysia’s manufacturing Purchasing Managers’ Index (PMI) rose for the second straight month, expanding from 51.2 in August to 51.5 in September. This was the highest index level since November 2017. The sharp improvement during the month was reflected across the board, namely output, new orders, employment, suppliers’ delivery time and stock of purchases during the month.

According to IHS Markit, among the PMI components, the main factor that pushed PMI higher in September was due to strong employment, which was reported as the strongest performance since the first month of the survey conducted in July 2012. Meanwhile, output and new orders also continued to trend higher in September, albeit the implementation of the Sales and Service Tax (SST), which already took effect beginning from 1st September 2018. We believe growth in Malaysia’s domestic demand provided some support as well as better overseas new export orders. In July, Malaysia’s exports growth improved from 7.6% yoy in June to 9.4%, led by higher demand for electrical & electronic goods (E&E), which rose sharply by 23.6% yoy in July (6.8% in June).

On a quarterly basis, Malaysia’s manufacturing PMI averaged around 50.8 in 3Q18, significantly higher than 48.6 in 2Q18. Despite some uncertainties from the external environment, we expect the country’s real GDP growth to improve from 4.5% yoy in 2Q18 to around 5.0-5.2% estimated for 3Q18. The country’s full year GDP growth is expected to be around 5% projected for 2018 (5.9% in 2017).

In September, Caixin China’s manufacturing PMI fell to the neutral level of 50, its weakest index in 16-month period. This may be resulted from an escalation of US-China trade war, which caused the China’s manufacturing sector to slow going into 2H18. The report also noted that the business confidence has dropped to nine-month low, while export sales dropped at a faster rate. In the Asean region, manufacturing conditions in ASEAN grew at a slower pace, where the headline PMI slowed from 51 in August to 50.5 in September. However, apart from Malaysia, countries in the region that have PMI indexes above the expansion level of 50 in September included Philippines (52), Vietnam (51.5), Indonesia (50.7) and Thailand (50).

Source: Affin Hwang Research - 2 Oct 2018