Bahana Securities - Indonesia’s August PMI: Contracting


by Harry SU 
Senior Associate Director Head of Equities & Research

For major Asian markets, outside China and Japan, the region’s manufacturers are
continuing to struggle, with the 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 points to highlights in August’s PMIs (Purchasing Managers Index) were the deterioration experiencedin 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 poor outlook for India, particularly as new orders slow at a rapid pace. 

On 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 our economic forecast with 2013 GDP growth of 5.8% from 5.9% previously, before improving slightly to 5.9% in 2014 (exhibit 2), in line with the government’s pump priming efforts leading up to the elections next year.  

In other Asian markets, ex China and Japan, we also see continued broad-based weakness in output and 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 recent depreciation of the Aussie dollar.  This is because the currency remains strong by historical standard, creating continued difficulties for Australian producers to be competitive globally. 

Going forward, we believe that Asian manufacturers, including Indonesia, will continue to struggle through the end of this year. 



Exhibit 1. Asia Pacific Manufacturing Purchasing Managers Index (PMI)
Country
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Australia
40.2
45.6
44.4
36.7
43.8
49.6
42.0
46.4
China
50.4
50.1
50.9
50.6
50.8
50.1
50.3
51.0
India
53.2
54.2
52.0
51.0
50.1
50.3
50.1
48.5
Indonesia
49.7
50.5
51.3
51.7
51.6
51.0
50.7
48.5
Japan
47.7
48.5
50.4
51.1
51.5
52.3
50.7
52.2
Singapore
50.2
49.4
50.6
50.3
51.1
51.7
51.8
50.5
South Korea*
70.0
72.0
76.0
80.0
81.0
80.0
73.0
77.0
Taiwan
51.5
50.2
51.2
50.7
47.1
49.5
48.6
50.0
Source:  Bloomberg, Markit  * BSI Manufacturing Index

Exhibit 2. Real GDP growth, 2008-2014F
Source:  Central Statistics Office, Bahana estimates