Manufacturing Activity Positive, Indonesia Slowing

Indonesia’s manufacturing sector showed moderating growth in May but is likely to have remained the most robust in the region according to the S&P Global PMIs but unlike the Philippines and Korea it showed soft foreign orders. Asian PMIs released today were all in expansionary territory. The ASEAN aggregate prints on Tuesday with the Thai and Malaysian PMIs.

• Indonesia’s S&P Global PMI moderated to 52.1 from 52.9, still signalling manufacturing activity continues to grow but at the slowest pace since November 2023. There has been a slowdown from Q1 when the PMI averaged 53.3 and also the outlook is lacklustre with business confidence at its lowest in more than four years.
• Manufacturing growth is being driven by new orders and output but domestically driven as export orders fell for the third straight month. Employment was little changed.
• Cost inflation remains high partly due to the weak rupiah but it can only be partially passed on due to softer demand and greater price sensitivity from customers. Output inflation was its lowest since October 2023.
• The Philippines also saw a slight moderation in manufacturing to 51.9 from 52.2 but the Q2 average of around 52 is higher than Q1’s 50.9. Unlike Indonesia, producers are positive about the outlook with sentiment rising to its highest in nine months.
• Manufacturing activity is being driven by new orders, including from overseas, and production. But employment levels dropped as voluntary leavers weren’t replaced. S&P Global noted that the pickup in foreign orders was due to “improved demand trends in key export markets and new client wins”.
• There was a drop in cost inflation for the first time in four years as producers shopped around but output inflation rose at a faster rate as businesses increased profit margins.

Source: MNI - Market News/Bloomberg