ASEAN manufacturing sees second consecutive month of deterioration

Confidence levels also diminished.

ASEAN's manufacturing sector continued to deteriorate for the second consecutive month in May after all key metrics, such as output, new orders, employment, and raw material inventories, experienced a decline.

The S&P Global ASEAN Manufacturing Purchasing Managers’ Index™ (PMI®) indicated another month of deteriorating conditions across the region, though the decline was less severe this time, with the index rising to 49.2 in May from April's 48.7.

Additionally, the performance of vendors has worsened, leading to longer delivery times for inputs that had previously been stable.

On a brighter note, cost pressures have eased, with companies only marginally increasing their prices. However, this adjustment is somewhat reflective of the overall declining demand in the marketplace.

This slight increase in the headline index coincided with a gentler rate of output contraction. Consequently, companies adjusted their employment levels, purchasing activities, and input stocks, resulting in milder downturns compared to those recorded in April.

Despite this, the rate of new orders received by the sector fell faster, including a drop in international orders, indicating a particularly challenging demand landscape. The contraction rates were the highest observed since August 2021.

The subdued demand environment provided some relief for companies, as cost burdens lessened considerably. The rate of input price inflation reached its slowest in five years, while output prices rose at a fraction of the speed of input costs, the weakest rate of charge inflation seen since late 2020.

Manufacturers in the ASEAN region exhibited a slightly more optimistic outlook for their production prospects in the coming year, despite the overall lackluster sector performance. Nonetheless, confidence levels remain historically low, ranking as the second-lowest since July 2020.

Maryam Baluch, an Economist at S&P Global Market Intelligence, commented on the situation: “The ASEAN manufacturing sector continues to face challenges as we reach the midpoint of the second quarter, with operating conditions worsening further. Even though the current decline is milder—thanks to softer contractions in output, employment, and purchasing activity—the steep drop in new orders suggests potential obstacles for growth in the upcoming year.”