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Analysis: Indonesia's August PMI: Contracting
For major Asian markets besides China and Japan, manufacturers are continuing to struggle, with headline numbers now mostly not above 50, a level that theoretically separates contraction from expansion (with the exception of Korea where BSI manufacturing index requires a reading above 100 for expansion)
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For major Asian markets besides China and Japan, manufacturers are continuing to struggle, with headline numbers now mostly not above 50, a level that theoretically separates contraction from expansion (with the exception of Korea where BSI manufacturing index requires a reading above 100 for expansion).
The main point to highlight in August's Purchasing Managers Index (PMIs) was the deterioration experienced in India and Indonesia. This drop to below 50 is significant in our view given that the two countries had been one of the most resilient economies, having experienced expansions in their manufacturing sectors in the last six months.
The situation in India has worsened with headline PMI showing the sector's first contraction since early 2009. Recent data displayed weak industrial production, suggesting a poor outlook for India, particularly as new orders slow at a rapid pace.
In Indonesia, PMI declined below the 50 level, pointing to a contraction in the manufacturing sector for the first time since February (exhibit 1). This is very much in line with our recent downward revision to an economic forecast with 2013 GDP growth of 5.8 percent from 5.9 percent previously, before improving slightly to 5.9 percent in 2014 (exhibit 2), in line with the government's pump priming efforts leading up to the election next year.
In other Asian markets, excluding China and Japan, we also see continued broad-based weakness in output ad new orders, despite some signs of improvements in both Taiwan and Korea.
In Australia, PMI also improved in August, but a headline reading of 46.4 translates to a sluggish manufacturing sector, even following the recent depreciation of the Australian dollar. This is because the currency remains strong by historical standards, creating continued difficulties for Australian producers to be competitive globally.
Going forward, we believe that Asian manufacturers, including those in Indonesia, will continue to struggle through the end of this year.
The writer is senior associate director/head of equities & research at PT Bahana Securities
