Malaysia’s manufacturing PMI returned to 50 level in December

Asean manufacturing Purchasing Manager’s Index (PMI) rose for the second consecutive month in December from 49.2 to 49.8, its highest reading since May 2019. Despite this, the region’s PMI remained below the 50-level mark since June 2019. IHS Markit guided that the slower decline in December was led by higher output which rose for the first time since June as well as a rise in order book volumes for the first time in five months. However, the region’s PMI was dragged by the continued modest improvement in suppliers’ delivery times and decline in employment and input inventories. Among the ASEAN countries, Myanmar (53), Philippines (51.7), Vietnam (50.8) and Thailand (50.1) were in the expansionary region. In contrast, Indonesia and Singapore remained below the 50-level mark at 49.5 and 46.1, respectively. Malaysia’s manufacturing PMI rose for the fourth consecutive month to the 50 level in December, making this its best reading since September 2018, supported by increases in output and new orders. Going forward, the sustained rise in the region’s PMI possibly reflects a potential bottoming out for the region’s manufacturing sector. We believe this improvement may be further supported by recent trade talk progress after it was announced that the “phase one” deal may be signed on January 15th 2020. If trade talks progress towards a “phase two” deal, with proposals to withdraw some of the tariff imposed earlier, we believe sentiments amongst global manufacturers on the global economy will improve and this bodes well for the region’s manufacturing exports.

Separately, Indonesia’s inflation rate eased for the fourth consecutive month to 2.7% yoy in December from 3% in November, its slowest rate since March 2019 weighed down by slower rise in cost of food, housing and utilities, clothing, education, recreation and sports as well as transportation, communication and finance. For the full year, headline inflation averaged 3% compared to 3.2% in 2018, remaining within Bank Indonesia’s (BI) inflation target range of 2.5-4.5%. In 2020, BI anticipates inflation to be stable within its target of 2-4%. Moving forward, inflationary pressure may trend slightly higher, arising from the possible cut in diesel subsidies in 2020 which was among President Widodo’s 2020 budget proposals. However, amid steady inflation, this would allow BI to maintain its current accommodative policy but further easing will hinge on the momentum of the country’s economic growth. In Thailand, headline inflation rose for the second straight month to 0.9% yoy in December from 0.2% in November, its fastest growth since July 2019. In 2019, headline inflation averaged 0.7% compared to 1.1% in 2018 which is below the central bank’s target of 1-4%. In 2020, Bank of Thailand has lowered its inflation target to 1-3% amid potential downside expected from lower-than-expected energy prices and minimum wage hike in 2020.

Source: Affin Hwang Research - 3 Jan 2020