• Asean manufacturing PMI rose to 51.9 in April from 50.8 in March, highest since July 2014, reflecting a regional expansion of the manufacturing sector
• In Indonesia, real GDP growth in 1Q21 contracted for the fourth consecutive quarter by 0.7% yoy, but smaller decline than -2.2% in 4Q20
• Bank of Thailand (BOT) kept its policy rate unchanged at a low of 0.5% in the latest MPC meeting

Region’s manufacturing sector to benefit from recovery in global economy

Asean manufacturing Purchasing Managers’ Index (PMI) rose for the second consecutive month from 50.8 in March to 51.9 in April. This was its highest expansion level since July 2014. IHS Markit guided that the increase in the PMI reading was driven by increase in new orders as well as better business confidence since January. Among the Asean-5 countries, Malaysia (53.9) Singapore (51.8), Indonesia (54.6) and Thailand (50.7) registered PMIs above 50, while the PMI of the Philippines (49.2) remained below 50 during the month. We believe that the sustained improvement in the region’s manufacturing sector has been supported by the recovery in global economy, especially from stronger demand from China. This was also reflected in optimism among producers, partly due to the less restrictive containment measures and rollout of vaccines. Global manufacturing PMI rose from 55 in March to to 55.8 in April, its best level since April 2010. However, even with the rise in the region’s manufacturing output, we believe downside risks remain due to re-imposition of containment measures (as seen in Malaysia, Singapore, Thailand and Philippines) following recent rise in cases, where uncertainties around the pandemic will continue to drag region’s domestic demand growth.

Separately, in Indonesia, real GDP growth in 1Q21 contracted for the fourth consecutive quarter by 0.7% yoy, but lower than the decline of -2.2% in 4Q20. Real GDP growth has also steadily improved from its low of -5.3% in 2Q20. During the quarter, growth was dragged by household consumption, which makes up over half of Indonesia’s GDP. Nevertheless, similar to region trend due to low base effect, we expect 2Q21 GDP growth to improve into positive territory, bolstered also by fiscal support, vaccination drive and increase in consumption around Eid celebration. The Government maintained its forecast of 4.5% - 5.3% GDP growth for 2021, with domestic spending and investment to be the main drivers.

Bank of Thailand (BOT) kept its policy rate unchanged at a low of 0.5% in the latest MPC meeting, but guided that it would be ready to use additional appropriate monetary policy tools to support the economy, if necessary. The BOT has cut its policy rate three times in 2020 with a total of 75 basis points. Due to lower tourist arrivals and the negative impact of a new wave of the outbreak, BOT maintained its GDP growth projection of 3% for 2021. In March, BOT revised its 2021 GDP forecast to 3.0% from an earlier estimate of 3.2%, but cautioned on downside risk. Recently, the Thai’s finance ministry also cut its 2021 GDP growth to 2.3% from 2.8%. We believe the BOT will maintain its policy rate at current level, and may only cut its policy rate by another 0.25bps to 0.25% if the latest third wave outbreak prolong.

Source: Affin Hwang Research - 7 May 2021