The ASEAN manufacturing sector saw conditions improve at a more modest rate in August but still remains above the global average.

“[The] latest data revealed a slight cooling on the month, as deteriorating foreign demand continued to act as a headwind to growth,” said Maryam Baluch, an economist at S&P Global Market Intelligence, in a note on Wednesday.  

The headline S&P Global ASEAN Manufacturing Purchasing Managers’ Index came in at 51.1 in August, slipping from 51.6 in July. Anything below 50.0 signals that the sector contracted during that month, while anything above indicates expansion. 

“The ASEAN manufacturing region wasn’t the only area to suffer from falling trade flows, in fact, the Global Manufacturing PMI data has revealed a deterioration globally,” Baluch said in an interview with Diplomatic Network (Asia) on Thursday. 

The JP Morgan Global Manufacturing PMI, released Wednesday, fell to an eight-month low in August at 49.5 from 49.7 in July.  

The JP Morgan Global Manufacturing PMI is a composite index produced by JP Morgan and S&P Global Market Intelligence in association with ISM and IFPSM. 

Export sales shrink 

Exports were down in August, which subsequently hurt the sector’s output and new orders.  

“The continued decline in export sales was in part attributed to subdued demand from international markets and global shipping challenges,” Baluch said.  

“This was especially the case for Indonesian manufacturers. Singapore and the Philippines also struggled to raise their export sales in August, with greater competition within the Asian region said to have driven the downturn. Meanwhile, Vietnam and Malaysia saw new export orders rise, but the rates of growth softened on the month, thereby signaling cooling foreign demand trends.” 

Payroll numbers a mixed bag 

The ASEAN manufacturing sector experienced a fall in employment overall. 

“The recent minor fall in payroll numbers reflects a mixed picture,” Ahmad Mobeen, an economist at S&P Global Market Intelligence, told DNA in a separate interview.  

“In Indonesia, weaker production and new orders have led to marginal job shedding for a second month, with some firms opting not to replace departing employees or enacting temporary layoffs due to softer sales and production. Similarly, Malaysia saw a slight drop in employment, as manufacturers reported sufficient capacity and falling backlogs.” 

“In contrast, Singapore saw a rise in hiring, driven by increased new orders and a build-up in unfinished operations that led to firms employing additional staff.” 

Inflation 

Surveyed ASEAN goods producers reported that both cost burdens and selling prices increased at a slower pace in August. Additionally, overall price pressures remained historically low. 

Mobeen said that inflation was still an issue despite the rise in costs slowing.  

“In Indonesia, supply-side constraints and unfavorable exchange rate drove up raw material prices, while in Singapore, rising transport costs, input material prices, and wage inflation due to a tight labor market pushed up cost pressures, with construction seeing the sharpest increase,” Mobeen said.  

“In Malaysia also, exchange rate weakness led to higher raw material costs, driving input and output prices to rise at the fastest rates since September 2022.” 

Outlook

There may be tailwinds in the coming months for employment growth.  

“Looking ahead, payroll growth in Indonesia may remain subdued due to weak industrial performance, though a rebound in domestic demand could offer support. In Malaysia, hopes for a recovery in new orders are boosting confidence in future production and thus employment prospects,” said Mobeen.  

“Singapore’s outlook is also brighter, with optimism at its highest in over three years, as improved business conditions could support further hiring.” 

Meanwhile, supply chain issues may persist with knock-on effects for inflation.  

“Supply constraints would keep pushing inflation up in the immediate months, though greater clarity regarding US Federal Reserve easing [interest rates] (likely from September) would reduce exchange rate volatility and help constrain pressures on that front.” 

Data 

The S&P Global Singapore PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. The sectors covered by the survey include manufacturing, construction, wholesale, retail and services.    

Survey responses are collected in the second half of each month.