Manufacturing activity across southeast Asia ‘stagnated’ in June

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Manufacturing activity across Southeast Asia stagnated last month, according to data released by IHS Markit earlier today, with domestic weakness offsetting strong demand from outside the region.

The regional Purchasing Managers Index (PMI) came in at 50.0 in June, falling slightly from the 50.5 level previously reported in May.

It was the weakest reading since January this year.

ASEAN nations include Indonesia, the Philippines, Vietnam, Thailand, Malaysia, Singapore and Myanmar.

The ASEAN PMI measures changes in activity levels across the region’s manufacturing sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.

At 50.0, that indicates that activity levels were unchanged from a month earlier.

This chart from IHS Markit shows the recent trend in activity level across the region.

Source: IHS Markit

And this breaks that chart down to a more granular level, looking at the performances of individual nations over the same period.

Source: IHS Markit

“Client demand across the region appeared to wane further, as growth in total new business eased to its weakest for five months,” said IHS Markit.

“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.”

The slowdown in new orders saw production levels stagnate, the first time that’s been seen so far in 2017. Stocks of raw materials and finished goods also fell, while a slowdown in work saw delivery times decline.

Prices for finished goods also grew at a slower pace than input costs, hinting that margin pressures for manufacturers across the region continued to intensify.

That was despite input prices growing at the slowest pace seen in six months.

Employment was one of the few bright spots during the month, increasing marginally compared to the levels reported in May.

Fitting with the mixed nature of the report, overall business confidence remained at one of the lowest levels in the history of the survey.

Bernard Aw, an economist at IHS Markit, described the regional June report card as “disappointing”.

“The ASEAN manufacturing sector stagnated in June amid waning demand, which is disappointing news after a promising start to the second quarter,” he said.

“After five months of expansion, output across the region was broadly unchanged while growth in total new orders eased further.”

Aw says the most concerning aspect about the recent trend is that improving international trade has not helped to boost activity levels across the region despite export sales rising at the fastest pace in four years in June.

“If domestic demand continues to soften, employment prospects will be affected, especially when there is evidence of spare capacity in the sector,” he says.

“That said, the uneven pace of manufacturing development across the region suggests that some nations may be more affected than others.”