• Indonesia’s PMI rose to 53.2 in March from 50.9 in February, its highest reading since the survey began and the fifth month above the 50-level mark.
• Improvement in the region’s manufacturing sector trended in tandem with China’s manufacturing performance.
• Singapore’s industrial production index (IPI) rose for the fourth consecutive month to 16.4% yoy in February (9.2% in January)

Indonesia’s Headline Inflation Remained at 1.4% Yoy in March

Asean’s manufacturing PMI showed improvement in March. In particular, Indonesia’s PMI rose to 53.2 in March from 50.9 in February, the fifth month above the 50-level mark and its highest reading since April 2011. IHS Markit guided that the increase was led by sharp growth in output and new orders. The sharp increase in March indicated an upward trajectory for the sector, but the agency also cautioned that the unexpected rise in Covid-19 cases may lead to slower growth in the sector. Similarly, in Thailand, manufacturing PMI rose to 48.8 in March from 47.2 in February. However, it remained in the contractionary region for the third month in a row. The fall in output and new orders outweighed the first rise in new export orders since February 2020. Malaysia’s manufacturing PMI rose to 49.9 in March from 47.7 in February, ending two consecutive months of declines. The improvement in the region’s manufacturing sector was also reflected in China’s Caixin General Manufacturing PMI, which expanded by 50.6 in March (50.9 in February). The official manufacturing PMI rose from 50.6 for February to 51.9 for March, with output and new (domestic) order sub-index increased during the month. Both surveys indicated that Chinese manufacturers were confident that further improvement in global economic conditions will likely increase the new export orders.

Singapore’s industrial production index (IPI) rose for the fourth consecutive month by 16.4% yoy in February from 9.2% in January. The positive growth was supported by precision engineering, electronics and biomedical manufacturing. The semiconductors segment increased by 36.5% supported by low production base and higher demand from 5G markets. Going forward, similar to the trend in the region’s manufacturing sector, we believe the increase in Singapore’s industrial production and manufacturing performance will sustain. Growth reflects a steady post-Covid manufacturing recovery, but we believe the possibility of delayed vaccine rollout across the world may also impact this export-led recovery.

Meanwhile, in Indonesia, headline inflation remained at 1.4% yoy in March similar to the rate of increase of 1.4% in February. This was due to higher food inflation of 2.2% compared to 1.9% in February, but offset by personal care services. The inflation rate was still below Bank’s Indonesia’s inflation target of 2-4%. Core inflation rate that exclude volatile food and government-controlled prices, eased to 1.2% yoy (1.5% in February). Bank Indonesia (BI), in its March monetary policy meeting, kept its key policy rate (7-day Reverse Repo Rate) unchanged at 3.5%, after a 25bps cut in February 2021. As the headline inflation remain below BI’s target range in the near term, we believe BI may still cut its policy rate further, if needed, to support the economy. However, we expect BI to hold policy rate at 3.5% in the next MPC meeting.

Source: Affin Hwang Research - 2 Apr 2021