World Economy

ASEAN Manufacturing PMI Rises in January

ASEAN Manufacturing PMI Rises in January
ASEAN Manufacturing PMI Rises in January

Growth in the ASEAN manufacturing economy gathered pace midway through the first quarter, according to the Nikkei ASEAN Manufacturing Purchasing Managers’ Index.

The data, compiled by IHS Markit, showed that the headline PMI rose from 50.2 in January to 50.7 in February, signaling a further improvement in the health of the sector, AseanToday reported.

IHS Markit said expansions in output, new orders and employment were all faster than in January. It said February data continued to show a relatively broad-based upturn, with five of the seven countries covered by the survey reporting an improvement in business conditions, unchanged from the start of the year.

Vietnam led the ASEAN manufacturing growth rankings for a second straight month during February as growth in its manufacturing sector picked up slightly to a ten-month high.

Myanmar remained in second position, having also registered a quicker pace of improvement in operating conditions, while the Philippines dropped to fifth place as tax reforms continued to limit growth.

Meanwhile, Indonesia returned to growth in February after weaker business conditions in the previous two months. Thailand saw faster, albeit still marginal, growth in its manufacturing economy, while Malaysia reported largely stagnant operating conditions. However, Singapore again failed to see an improvement in sector conditions, though the rate of deterioration was slower than in January.

IHS Markit principal analyst Bernard Aw said the ASEAN manufacturing upturn continued in February. He said output grew at the strongest rate for ten months, underpinned by higher new orders.

“Employment meanwhile showed one of the largest gains for over three years. However, the outlook for factory jobs across the region remains mixed amid ongoing signs of spare capacity. Backlogs of uncompleted work continued to fall, as has been the case for over three-and-a-half years, suggesting that higher inflows of new orders will be needed to sustain stronger employment growth.

“Furthermore, ASEAN manufacturers faced a further sharp rise in input costs. Limited growth of selling prices suggests that, so far, companies have struggled to pass on greater costs to customers, which puts pressure on profit margins. While rising global commodity prices, such as oil and industrial metals, were a primary factor for higher costs, weaker exchange rates were responsible in some cases,” said Aw.

  ASEAN and China

ASEAN still relies on Chinese manufacturing. Singapore was the only country to post a trade surplus with China in 2017. But ASEAN has an opportunity to challenge China’s manufacturing dominance.

ASEAN has many of the same conditions today that China had in the early 2000s. Vietnam, in particular, is securing new factory investments due to its low-cost labor.

ASEAN has plenty of raw materials and access to talented engineering graduates. The region is also pouring investment into infrastructure projects.

It is not unrealistic to expect ASEAN to take the mantel as the low-cost manufacturing hub in Asia. Places like Vietnam can already compete with China on low-cost labor. Many of the infrastructure projects are due for completion by 2022. Once they are done, ASEAN will be able to challenge China there too.

An ageing Chinese population will also become a problem in the coming years. The working-age population in China peaked in 2011 at 925 million people. It has been steadily declining since. Many ASEAN countries have young populations. For example, 74% of the Vietnamese workforce is under 50 years old. This will also feature prominently in companies plans when selecting factory locations.

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