Asia: PMIs broadly stable in September - Westpac

Simon Murray, Research Analyst at Westpac, explains that Asian PMIs were broadly stable in September as Japan’s upswing firmed while India and Indonesia maintained more moderate expansion levels.

Key Quotes

“Variation in the business outlook is notable in this release. The Indonesian PMI, though positive, reached a December 2012 low; though a way off, uncertainty over the 2019 election may have been a factor. Meanwhile, Japanese firms are optimistic on Olympics related demand and Indian firms are increasing hiring.”

“Japan’s PMI rose to 52.9 from 52.3, a result consistent with the robust levels seen over 2017. The lift was driven by an increase in momentum in output and new orders, with a jump in new exports indicating strong external demand. Note that the survey took place before Abe’s election announcement.”

“Against this, the employment sub-index weakened from the cyclical peak that had previously held during the recent upswing. However, the results from the alternative Tankan survey of manufacturers – which hit a decade high in Q3 2017 – shows an increase in the number of firms with an ‘insufficient’ level of employment. This suggests that the drop in the employment sub-index relates to a shortage of labour rather than a decrease in firms’ willingness to hire, offering encouragement for policy makers seeking stronger wage growth.”

“India’s PMI held steady at 51.2. This pace of expansion is in line with the average over the last five years and provides further evidence that the economy is recovering from disruption related to the GST’s introduction. Output and new orders are expanding, though the pace softened in September. This is offset by a consolidation in the employment sub-index which has held near its cyclical peak the last two months.”

“While the increase in hiring suggests firms are positive on the outlook, economic uncertainties linger. The RBI left rates on hold in October as the bounce in inflation off its lows slightly exceeded near-term expectations. The 2017-18 growth forecast was revised down to 6.7% from 7.3% due to investment being held down by stressed balance sheets, GST implementation disruption, and a below average monsoon. On the upside, incomes may benefit from an increase in state wages growth, while public banks are likely to be recapitalised.”

“Indonesia’s PMI fell to 50.4 from 50.7 but remains slightly above its five year average. Output fell into contractionary territory while new orders’ expansion slowed as new export order momentum dissipated after August’s jump. Bank Indonesia delivered a follow up rate cut in September - after the PMI survey closed - precipitated by soft core inflation reads and low credit growth.”