SINGAPORE (ICIS)--Southeast Asia’s manufacturing sector has returned to an expansion mode in August, with a purchasing managers’ index (PMI) reading of above 50, on the back of increased output and new orders, supporting expectations that the region will post a stronger economic growth this year, analysts said.
The Nikkei ASEAN manufacturing PMI rose to 50.4 in August from 49.3 in July, based on joint readings by Nikkei and financial information services provider IHS Markit.
The PMI is a barometer of an economy's manufacturing performance, with a reading of 50 and above indicating expansion.
Improved manufacturing conditions in August followed the slightly faster pace of economic growth in the second quarter, according to Spain-based FocusEconomics.
Southeast Asia’s GDP posted a faster year-on-year growth of 5% in April-June 2017, up from 4.8% in the preceding quarter, it said in its latest Consensus Forecast report for September.
“The result [Q2 growth] comes as good news for the region, which had seen healthy but lackluster growth in recent years, and is largely due to a resurgence in global trade along with robust domestic demand,” FocusEconomics said.
The acceleration in regional economic growth was driven by better-than-expected performance of Malaysia and positive contributions from Singapore and Thailand, the research firm said.
Malaysia posted a second-quarter annualised GDP growth of 5.8%, according to media report.
Meanwhile, growth in Indonesia – ASEAN’s largest economy – was 5.0% in the June quarter, unchanged from the first quarter.
FocusEconomics has maintained its GDP growth forecasts for southeast Asia at 4.9% this year and next year from 4.6% in 2016.
Based on the August manufacturing PMI readings by Nikkei, six of the seven countries covered by the surveys in the region posted readings above 50, indicating expansion. (please see interactive map, table below)
There were signs of improving demand ─ from both domestic and external sources ─ for ASEAN manufactured goods midway through the third quarter, Nikkei said.
Total new business inflows in southeast Asia recovered in August, posting their fastest pace of growth in four months, supported by renewed growth in export sales.
“However, improving demand may not boost employment in the short-term as the sector still struggles with ongoing spare capacity, as signalled by the prolonged fall in backlogs,” said IHS Markit principal economist Bernard Aw.
“Furthermore, business confidence remained below the historical average despite improving from July, suggesting that firms will maintain a cautious approach to staff hiring,” Aw said.
Vietnam posted the highest August PMI in southeast Asia, displacing the Philippines in the ranking, and was the only country in the list to have recorded two consecutive months of improvement, according to Nikkei.
The Nikkei Vietnam manufacturing PMI rose to 51.8 in August from 51.7 in July.
“The Vietnamese manufacturing sector continued to perform steadily mid-way through the third quarter of the year,” said Andrew Harker, an associate director at IHS Markit.
“There were further positive signs regarding new orders which should help the sector to maintain growth going forward,” Harker said.
Meanwhile, Singapore, Indonesia and Malaysia returned to expansion mode in August after showing deteriorations in the previous month, Nikkei said.
In Malaysia, the headline Nikkei manufacturing PMI rose to 50.4 in August from July’s 48.3, with factory output rising at the fastest rate since February.
“Growth was underpinned in the main by an improvement in new export orders, which helped to bolster output, in turn shoring up confidence and driving employment higher,” said IHS Markit director Paul Smith.
“However, current growth seems a little precarious given the ongoing weakness in total sales, which continue to fall on the back of underwhelming domestic demand,” Smith said.
Meanwhile, the Nikkei manufacturing PMI for Indonesia in August rose to 50.7 from July’s one-year low of 48.6, reflecting renewed increases in order books and output.
“Business conditions in Indonesia improved midway through the third quarter as companies benefited from stronger demand for their goods from domestic and externally-based clients,” said Pollyana De Lima, a principal economist at IHS Markit.
Elsewhere in the region, Singapore posted the strongest improvement in more than 18 months, while Thailand recorded a second straight month of worsening manufacturing conditions, with the rate of deterioration the quickest seen since last November, according to Nikkei.
Thailand’s manufacturing PMI dipped to 49.6 in August from 49.5 in July, weighed down by further declines in output and new orders.
“The downturn continued to be dominated by weakening demand in domestic markets, although foreign sales strengthened further,” said IHS Markit’s Aw.“Notably, firms did not indicate optimism for higher output over the next 12 months – for the first time in the survey history,” Aw said.
Picture (top): Dancers perform during the grand celebration of the 50th anniversary of the founding of the Association of Southeast Asian Nations (ASEAN) (Xinhua News Agency/REX/Shutterstock)
Focus article and interactive by Nurluqman Suratman