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Despite a broad increase in COVID-19 infections in the ASEAN
region, manufacturing conditions remained resilient in February
with the ASEAN manufacturing PMI little changed from the strong
reading in January. Output growth was supported by robust demand
for ASEAN manufactured goods. That said, supply constraints
remained a prevalent issue, one that appears to be fanning further
price pressures while limiting an even stronger recovery of the
region.
ASEAN growth remained strong in the face of the Omicron
wave
Manufacturing conditions in the ASEAN region remained resilient
in February as shown by the IHS Markit ASEAN Manufacturing PMI,
which was little changed at 52.5, down from 52.7 in January.
Readings above 50.0 signals an improvement or increase on the
previous month and February's reading for the IHS Markit ASEAN
Manufacturing PMI was the fourth strongest in the nine-year history
of the ASEAN PMI.
IHS Markit ASEAN Manufacturing PMI
The solid manufacturing growth was recorded despite a surge in
COVID-19 infections across many ASEAN countries in February, led by
Singapore on a cases-per-million-people basis. Philippines was an
outlier in this regard, experiencing a continued decline in cases
after the COVID-19 Omicron wave receded in January.
Correspondingly, Philippines' manufacturing PMI rebounded to the
highest in over three-years from January's neutral level as
recovery ensued.
That said, leading the charge in manufacturing sector expansion
had been Singapore in February despite the exponential increase in
COVID-19 cases in the city state.
On the other end of the spectrum was Myanmar with the only
manufacturing PMI reading in contraction territory amongst the
seven ASEAN countries tracked by the PMI. Deteriorating COVID-19
conditions, political instability, weak demand and input shortages
were some of the issues listed to have plagued the nation.
Manufacturing PMI across ASEAN countries
ASEAN output growth driven by strong demand in
February
The resilient ASEAN manufacturing output growth in February was
driven by improving new orders performance. The seasonally adjusted
New Orders Index rested well above the 12-month average in February
with five of the seven ASEAN constituent ASEAN nations reporting
new orders growth. Vietnam, which led the growth of new orders in
February, reflected better customer demand, including international
demand, supporting its expansion. Philippines and Thailand
meanwhile saw incoming new orders returning to growth in February,
outlining the robust demand for ASEAN manufactured goods.
PMI new orders indices
Supply constraints remain prevalent issue for
production
While the broad increase in COVID-19 infections in the ASEAN
region appeared to have done little to dent the manufacturing
sector's performance in February, an overarching theme of supply
constraints continued to present itself as a key hindrance to
better manufacturing output performance.
IHS Markit ASEAN Manufacturing PMI
Suppliers' delivery times across the ASEAN region continued to
lengthen at a rate faster than the series average in February, even
though some improvements from January were evident. Anecdotal
evidence of input shortages, transportation delays and manpower
issues were frequently cited as reasons for the deterioration of
vendor performance. As a result, the accumulation of backlogged
work continued in the ASEAN manufacturing sector, and at a severe
rate.
It is important to consider the impact of these capacity
pressures for the ASEAN region, with the effect being multi-fold.
First, upward price pressures may be prolonged by these supply
issues. Supply pressures seen in 2021 had carried forward into
2022, made worse by the latest COVID-19 Omicron wave, and
may well persist throughout this year. As a result, price
inflation remained steep for manufactured goods.
Second, higher prices are discouraging spending which may impede
future output. ASEAN manufacturers had reported in the February
survey that higher price pressures discouraged some input buying
activity, which alongside the COVID-19 disruptions, led to the
slowest purchasing activity growth in the current five-month
sequence. This was divergent in trend from the improving new orders
expansion in February. The record increase in selling price
inflation in February also signalled the impetus for ASEAN
manufacturers to share these cost burdens with their clients.
Finally, one can see how the issue could potentially snowball,
particularly if demand growth hastens with any further recovery in
new orders as the COVID-19 Omicron wave further recede.
ASEAN manufacturing outlook
Despite challenging operating conditions, amid lingering
COVID-19 disruptions and persistent supply issues, ASEAN
manufacturers held a positive view on future outlook across all
seven constituent nations in February. This reflected hopes of
continued economic recovery into the next 12 months. The level of
business confidence fell to a six-month low, however, and was weak
by historical standards.
While further declines in COVID-19 infections are expected to
provide immediate alleviation for the ASEAN manufacturing sector,
the management of supply constraints may have a bigger part to play
to ensure continued manufacturing output growth in the months ahead
absent future COVID-19 outbreaks.
The survey data were also collected prior to the Russia-Ukraine
conflict, which also adds to downside risks to business confidence,
demand and supply chains while also exacerbating inflationary
pressures, most notably via higher energy prices.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
