Thailand factory growth hits 3-month high in June

Business confidence kept climbing after March’s near 5-year low.

Thailand’s manufacturing sector picked up speed in June, with factory production and new orders both expanding at a faster clip and business confidence continuing to claw back ground lost earlier in the year.

The headline S&P Global Thailand Manufacturing Purchasing Managers’ Index rose to 53.6 in June from 52.6 in May, its highest reading in three months, pointing to a sharper improvement in the health of the country’s goods-producing sector.

Firms dip into stockpiles

Demand strengthened further in June, with new business rising for a 14th month running. Manufacturers credited successful marketing drives, fresh client wins and larger orders from existing customers for the robust expansion. That in turn spurred production growth, which quickened to its fastest pace since December last year.

Backlogs of work nonetheless built up again in June, as firms struggled to keep pace with the flow of orders coming in. The increase was modest, if slightly sharper than May’s, and came even as employment remained little changed on the month. To bridge the gap between order books and production lines, manufacturers drew on their inventories, with post-production stocks falling for the first time since March.

On the supply side, delivery times from vendors lengthened slightly, though firms were still able to nudge up their stocks of purchases, if only marginally.

Cost pressures ticked higher too, with raw material prices frequently cited as the culprit. Factory gate prices were raised more aggressively than in May as a result, though rates of inflation for both input costs and output prices stayed well below April’s highs. Business confidence, meanwhile, kept recovering, with the Future Output Index rising for a third consecutive month, extending its rebound from March’s near five-year low.

Joe Hayes, Senior Principal Economist at S&P Global Market Intelligence, said Thailand’s manufacturing sector had regained momentum in June, with demand-side indicators pointing to a positive near-term outlook, as stronger order book growth, quicker purchasing activity and rising backlogs suggested the upturn in output had further to run.

He added that the sustained rebound in firms’ output expectations, which had recovered swiftly from March’s low, was reflected in strong sales forecasts across survey respondents.

He, however, cautioned that the supply side could prove a limiting factor, with employment showing little change so far this year — though a productive workforce could help offset capacity constraints.