Asia: Easing PMIs suggests a cresting in activity - Westpac

PMIs eased across Asia in March, continuing the recent run of softer momentum in the leading gauge of manufacturing activity, according to Simon Murray, Research Analyst at Westpac.

Key Quotes

“Hard data has remained positive in early 2018, but the general cresting of PMIs in Asia over February and March suggests growth is reaching a plateau at high levels after 2017’s uplift. Trade tensions are likely to be weighing on firms’ confidence. Despite this downside risk, the overall outlook for the year ahead is stil Asia PMIs plateau, growth to follow?”

“Looking at the country detail, Japan has given up its turn of the year spike to be back at levels seen in October. In March, the headline PMI fell to 53.1 from 54.1 in Feb and Jan’s 54.8 peak – back to early 2014. The drop was seen in output and new orders – new export orders were most affected. The stronger Yen is acting as a headwind for activity amongst ongoing volatility in equity markets.”

“Other developed east Asian economies have also seen a slowing in their PMIs over the past few months. A notable example is South Korea whose PMI dipped to a contractionary read of 49.1 in March. This is in contrast to recent trade data which showed enduring growth in exports driven by semiconductor demand, and news of a trade agreement with the US.”

“Turning to developing Asia, India’s PMI dipped to 50.9 from 52.1. Output turned markedly lower but new orders held up relatively well, largely due to domestic demand (new export orders saw a sharp drop). The most striking detail was the fall in the employment sub-index to 49.6. This may be due to over-hiring in the past seven months, when the sub-index held well above average.”

“Indonesia’s PMI fell to 50.7 from 51.4. Similar to India, monthly output saw the most slippage, while new orders fell to a lesser extent. Indonesia should continue to see solid growth.”