Southeast Asia PMI Data Signals First Drop in Factory Output in Three Years

By Fabiana Negrin Ochoa and Amanda Lee

Softer demand dragged Southeast Asian manufacturers' output down for the first time in three years, survey data showed, flashing a mild warning sign about slower economic growth.

Purchasing managers' index data for Asean manufacturers "signalled growth easing to a near crawl in September," said Maryam Baluch, economist at S&P Global Market Intelligence. "Output fell back into contraction territory, while a sharp downturn in trade volumes heavily weighed on overall demand, which rose only slightly."

The headline S&P Global Asean manufacturing purchasing managers' index hit a seven-month low in September, dropping to 50.5 from 51.1 in August, barely staying above the 50.0 mark that separates an expansion from a contraction.

The headline PMI figure, a weighted average of subindexes including new orders and employment, pointed to cooling underlying demand trends that led to a decline in output.

Manufacturing activity stayed subdued in Indonesia, reflecting the global macroeconomic environment during September, while the upturn in Thailand lost momentum, and business conditions in Malaysia were muted as production was scaled back amid broadly stagnant new orders, the S&P data showed.

The Philippines fared better, despite demand for Filipino goods dropping notably in international markets, with Baluch expecting robust domestic demand to drive growth.

Despite the broadly downbeat readings, the PMI data signaled that optimism among Asean goods producers in September was surprisingly resilient. Confidence was at its highest since the start of the year, indicating companies still expect higher output over the next 12 months, S&P said.

Hiring continued to grow in Thailand, Indonesia and elsewhere, as some firms bet that momentum will pick up.

"The region's manufacturing upturn has tapered, but is still in mild expansion," said Erica Tay, economist at Maybank Investment Banking Group, adding that it is too early to tell if the drop in output was a blip or an inflection point.

Costs pressures seem to be under control in the region, which may have contributed to manufacturers' optimism, Tay added.

The continued pullback in inflationary pressures signaled by the data could smooth the path toward more interest-rate cuts in the region.

Monetary policy easing is gathering pace in Asia, with the Philippines and Indonesia having kicked off their rate-cutting cycles as inflation moves toward central banks' targets. South Korea could be next to jump on the bandwagon, with recent data there pointing to cooling housing inflation.

Demand for electronics, fueled by the artificial-intelligence boom, offers a cushion to headwinds elsewhere for Asia's exporters. But slower global growth continues to cast a shadow.

"Softer growth in new orders was the main factor weighing on manufacturing last month," said Capital Economics economist Shivaan Tandon.

"While the PMI surveys aren't always a good guide to the hard activity data, their recent signals are consistent with our expectation for manufacturing activity in Asia to struggle in the near term," he said in a note.

Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com and Amanda Lee at amanda.lee@wsj.com

(END) Dow Jones Newswires

October 01, 2024 04:20 ET (08:20 GMT)

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