ASEAN PMI moved closer to stabilisation

• Asean Manufacturing PMI recovered from 46.5 in July to 49.0 in August, but remained below 50 for the sixth consecutive month
• Global manufacturing PMI rose from 50.6 in July to 51.8 in August, a twenty one month high
• Indonesia’s headline inflation rate eased for the fifth straight month by 1.3% yoy in August compared to 1.5% in July.

August manufacturing data potrays better yet subdued performance

After hitting a low of 30.7 in April, Asean’s Manufacturing PMI recovered further from 46.5 in July to 49 in August, with steady showing in Indonesia. However, Asean PMI remained below the 50 level for the sixth consecutive month. The recovery in the Asean PMI was not across the board, where only two out of seven countries registered improvement i.e. Myanmar (53.2) and Indonesia (50.8), as both countries exceeded the expansion 50 level. Meanwhile, manufacturing PMI in Malaysia slowed to 49.3 in August, Thailand (49.7), Philippines (47.3), Vietnam (45.7) and Singapore (43), where these countries continued to register a reading below 50. IHS Markit also noted total the region’s new orders fell at its softest rate since March 2020 and moving closer to near stabilisation in August. This was consistent with the recovery of the global manufacturing sector, as global manufacturing PMI rose from 50.6 in July to 51.8 in August, a twenty one month high, with further improvement in China, US, Germany, UK, India and Brazil. China’s Caixin General Manufacturing PMI returned to an expansion of 53.1 in August (52.8 in July), its fastest pace expansion since January 2011, with increases in both output and new orders during the month. As both US and China are major trading partners for Asean, as global manufacturing sector recovers, we also expect Asean’s PMI to continue to improve in the months ahead.

Meanwhile, Indonesia’s headline inflation moderated for the fifth straight month by 1.3% yoy in August compared to 1.5% in July, due to lower costs of food, beverage and tobacco as well as sustained contraction in costs of transportation and information, communication and financial service. Similarly, core-inflation eased to 2% yoy from 2.1% in July. Going forward, we believe weak domestic demand may continue to weigh on inflation despite some easing of containment measures. However, despite the government’s effort to continue to accelerate disbursement of stimulus measures, with inflation trending towards Bank Indonesia’s (BI) inflation target range of 2-4% level, we believe there is a possibility for BI to lower rates further to support growth, especially if economic recovery is slower than anticipated. BI has cut the benchmark interest rate four times this year (100bps) to 4%. Nevertheless, BI will continue to maintain price stability and strengthen policy coordination.

In Thailand, the headline inflation rate declined for the sixth straight month by 0.5% yoy in August (-1% in July), which was below Bank of Thailand’s (BOT) inflation rate target range of 1-3% for 2020. Moving ahead, headline inflation will likely remain low due to weak demand as well as low global oil prices. In terms of monetary policy, we expect BOT to leave its policy rate unchanged after lowering it five times this year by a total of 125 basis points to an all-time low of 0.5% in order to support the economy.

Source: Affin Hwang Research - 4 Sept 2020