• Asean manufacturing Purchasing Managers’ Index (PMI) fell to 49.7 in February from 51.4 in January, below 50 level for first time since October 2020. However, we expect Asean PMI to improve in tandem with global trend
• Indonesia’s headline inflation eased to 1.4% yoy in February from 1.6% in January, we believe BI will likely still cut its policy rate further if needed
• Singapore’s industrial production index (IPI) slowed for the second consecutive month to 8.6% yoy in January (16.2% in December)

Global manufacturing PMI rose to a three-year high of 53.9 in February

The Asean manufacturing Purchasing Managers’ Index (PMI) fell to 49.7 in February from 51.4 in January, falling below from expansionary region to contractionary region for the first time since October 2020. IHS Markit guided that the decrease in the PMI reading was caused renewed declines in factory production and order book volumes. Sharp drop of new export orders led the order book volumes to decrease faster than output. Among Asean countries, Singapore (55.2), Philippines (52.5), Indonesia (50.9) and Vietnam (51.6) recorded PMIs above 50, meanwhile Thailand (47.2) and Malaysia (47.7) remained in the contractionary region. In the months ahead, with global manufacturing PMI rising to a three-year high at 53.9 in February from 53.6 in January, we believe Asean PMI will likely show some signs of improvement. However, China’s Caixin General Manufacturing PMI eased further for the third straight month to 50.9 in February from 51.5 in January, its weakest reading since May 2020, but remained above the 50-level mark for the tenth consecutive month.

Although Singapore’s PMI rose to 55.2 in February, industrial production index (IPI) slowed for the second consecutive month by 8.6% yoy in January from 16.2% in December. The positive growth was supported by precision engineering, electronics and chemical productions. The semiconductors segment increased by 23.8% supported by automotive, cloud services and 5G markets. Going forward, we believe the increase in industrial production and manufacturing performance will provide some offset for weak domestic demand and services sector in the country. The growth reflects a steady post-Covid manufacturing recovery, but the possibility of delayed vaccine rollout across the world may impact this export-led recovery.

Meanwhile, in Indonesia, headline inflation eased for second month in a row to 1.4% yoy in February from 1.6% in January. This was due to slower food inflation of 1.9% compared to 2.8% in January. The inflation rate was below Bank’s Indonesia’s inflation target of 2-4%. Core inflation rate that exclude volatile food and governmentcontrolled prices, eased to 1.5% yoy (1.6% in January). Bank Indonesia (BI), in its February monetary policy meeting, lowered its key policy rate (7-day Reverse Repo Rate) by 25bps to 3.50%. As the headline inflation remain below BI’s target range in the near term, we believe BI will likely cut its policy rate further if needed, to support the economy.

Source: Affin Hwang Research - 5 Mar 2021