Mixed PMI Manufacturing Performance by ASEAN Countries

Asean manufacturing Purchasing Manager’s Index (PMI) fell to a reading below 50 and contracted to 49.7 in June from 50.6 in May. This was after staying above the 50-level for third consecutive months, and it was the lowest PMI since February 2019. The contraction was attributed to the softer trends of employment as well as weak expansion in production. The drop in ASEAN’s PMI was also in tandem with global manufacturing PMI, which decreased further from 49.8 in May to 49.4 in June. Among the ASEAN countries, Malaysia‘s PMI in June declined to 47.8, 1.0 points lower than May’s figure of 48.8. Its marked the ninth consecutive months of deterioration, where the PMI reading was below 50-level. According to Markit report, Malaysia’s manufacturing sector faced some challenges with a weakening demand, as well as lesser new orders request from international clients, which attributed to lower production.

Meanwhile, Indonesia, Singapore and Thailand registered lower PMI in June. Indonesia’s PMI fell by 1.0 points to 50.6 in June (51.6 in May), while Singapore eased to 50.6 in June from 52.1, its lowest reading since February 2019 (49.8). Likewise, Thailand’s PMI slipped by 0.1 points to 50.6 in June from 50.7 in May. In contrast, Vietnam and Philippines recorded higher PMI reading in June. Vietnam’s manufacturing PMI rose to 52.5 in June (52.0 in May), while Philippine’s PMI rose slightly higher to 51.3 from 51.2 in May. We believe the earlier imposed tariffs from trade war between US and China probably impacted the production in manufacturing sector, as evident in the disruption in the global supply chain. However, with the recent truce between US and China in the G-20 Summit, where both countries agreed to resume negotiations in their trade dispute, the risk of Trump imposing an additional US$300bn in tariffs on all Chinese exports to the US, has now been put on hold, the global manufacturing PMI may stabilise slightly in the coming months. However, downside risks remain.

Separately, the inflation rate in Indonesia rose by 3.3% yoy in June, the same rate of increase in May, but slightly above expectation of 3.2%. Inflation in June was mainly driven by the hike in prices of food by 4.9% yoy (4.1% in May). It was its highest rise since July 2018, which rose by 5.3% yoy. Inflation in June also was led by the increase in cost of processed food, beverages and tobacco ( 4.0%) and clothing (3.8%). Despite this, we expect headline inflation to remain manageable and likely in tandem with Bank Indonesia’s (BI) target corridor of 2.5-4.5%. In the last meeting, BI kept its policy rate unchanged at 6.0% for a seventh straight month but moved to cut the reserve requirement for banks. Governor Warjiyo guided that BI would lower the reserve requirement by July with 50 basis points cut to increase liquidity.

Source: Affin Hwang Research - 5 Jul 2019