SINGAPORE (ICIS)--Southeast Asia's manufacturing sector has managed to remain on an expansionary mode throughout the first half of 2017 although June data came in weaker compared with May, with resilient domestic demand likely to continue supporting the region’s economic growth for the rest of the year, analysts said.
Based on Nikkei and IHS Markit’s survey of manufacturers in the region, the ASEAN Manufacturing PMI in June stood at 50.0, the threshold for expansion, down from 50.5 in May. June marks the lowest monthly PMI reading since the start of the year.
Three of the seven economies included in the ASEAN PMI basket indicated contraction in industrial output, with four in expansion mode.
“The ASEAN manufacturing sector stagnated in June amid waning demand, which is disappointing news after a promising start to the second quarter,” IHS Markit economist Bernard Aw said.
Manufacturing output across the region has continued to expand over the past six months, but growth in total new orders eased further, he said.
“The greatest worry is that there were signs of a struggle to maintain manufacturing growth among many of the ASEAN nations covered under the survey. Rising international trade has not noticeably helped regional countries boost their manufacturing activity, despite export sales rising at the fastest rate for four years in June,” Aw said.
Employment prospects in the region could be affected if domestic demand continues to soften, he said, citing an uneven pace of manufacturing growth across the region.
FocusEconomics analysts, meanwhile, have maintained their full-year growth projection for ASEAN economies at 4.8%, up from 4.6% in 2016, noting that upside and downside risks to the region’s economic prospects remain balanced.
While protectionist US policies or a pronounced slowdown in China are large downside risks to the region’s outlook, these have yet to materialise, it said in its Consensus Report Forecast for July.
“Slower than expected government spending or muted reform progress could hamper the region’s prospects, while stronger than expected global growth is an upside risk," it said.
In Indonesia, the region's biggest economy, growth is expected to edge higher in the second quarter, supported by the government’s ambitious spending plan, despite a deterioration in manufacturing activities in June.
The Nikkei Indonesia manufacturing PMI fell to 49.5 in June, down from May’s 50.6 amid subdued demand conditions.
“The upturn in manufacturing was interrupted during June as weak domestic demand triggered reductions in output and employment, said Pollyanna De Lima, another economist at IHS Markit.
“These factors, combined with stagnant order books and a softer increase in input stocks, resulted in a PMI reading that was consistent with worsening operating conditions in the sector,” she said.
For the whole second quarter, however, Indonesia's PMI average was in expansion territory and higher compared with the first three months of 2017.
“This indicates that manufacturing looks set to provide a stronger contribution to GDP than it did in the opening quarter,” De Lima said.
For the whole of 2017, IHS Markit forecasts Indonesia’s economy to post a 5.0% growth, unchanged from the previous year.
“Data for the second quarter suggests that the [Indonesian] economy continues to gather steam, albeit slowly. Industrial production growth accelerated in April and exports grew nearly 25% in May,” said Spain-based FocusEconomics.
FocusEconomics, on the other hand, forecasts Indonesia to post an economic growth of 5.2% in 2017, and 5.4% in 2018.
Among ASEAN economies, the Philippines has maintained its top ranking in terms of manufacturing activity for the second straight month, although its PMI reading has slipped to 53.9 in June from 54.3 in May, according to Nikkei.
Vietnam moved up to second place in the PMI growth ranking for June as growth in its manufacturing sector picked up, it said.
Thailand and Singapore showed improved business conditions in June, with their PMIs crossing above the 50 threshold for expansion.
Myanmar recorded a deterioration in manufacturing activities, with its PMI reading slipping to 49.4 in June from 52.0 in May.
Overall demand across southeast Asia appeared to be waning further in June, with growth in total new business easing to its weakest in five months, it said.
“This was despite demand from foreign clients strengthening in June, as shown by new export sales rising at the quickest pace for just over four years,” according to Nikkei.
Picture: Women work at Sritex textile factory in Solo, Central Java Province, Indonesia (ZUMA/REX/Shutterstock)
Focus article by Nurluqman Suratman