china manufacturing activity slows
Manufacturing conditions weaken in China Reuters

Manufacturing conditions in China continued to contract and dropped to its weakest level in three months while that of Indonesia remained in the expansion mode as per the PMI data released by Markit Economics on Wednesday (1 Jun). Malaysia's conditions too deteriorated further like China's as indicated by the PMI at a 5-month low.

China

The Caixin Manufacturing PMI in China fell to 49.2 in May from 49.4 in the previous month and slightly below market consensus. It was the weakest reading since February as output fell fractionally while new orders shrank for the first time since February.

Data showed that job shedding persisted across the sector, with the rate of reduction remaining close to February's post-global financial crisis record. Meanwhile, weak demand conditions underpinned further falls in both purchasing activity and inventory holdings.

Experts said that China is unable to sustain the momentum of the first quarter and is still in the process of bottoming out.

"Overall, China's economy has not been able to sustain the recovery it had in the first quarter and is in the process of bottoming out. The government still needs to make full use of proactive fiscal policy measures accompanied by a prudent monetary policy to prevent the economy from slowing further," said Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group.

Indonesia

The Nikkei Manufacturing PMI in Indonesia dropped to 50.6 in May from 50.9 in April. While output stagnated following two consecutive months of growth, new orders rose at a slower pace, details showed.

In Indonesia, both employment and buying activity were up and stocks were accumulated. Growth of preproduction inventories was only slight, while an increase in holdings of finished goods was sharp and the quickest since April 2011.

On the price front, input costs increased at the strongest rate in 2016 so far, while charge inflation was at a three-month high, Markit said, adding that the outlook is encouraging.

"The outlook, however, appears encouraging as businesses continued to take on additional workers and scaled up their buying activity to the greatest extent since July 2014, suggesting that a pick-up in demand is expected," said Pollyanna De Lima, an economist at Markit.

Malaysia

Malaysia's headline PMI posted at 47.2 in May, little-changed from April's five-month low, thereby indicating a solid deterioration in operating conditions at Malaysian manufacturers.

The latest figure was below the average over the current 14-month sequence of contraction according to Markit. The May reading reflected contractions in output, new orders and stocks of purchases, it said.

Experts at Markit said the impact of the recent weakness in the Malaysian currency was mixed as far as manufacturing conditions are concerned.

"New exports orders benefitted from the weak ringgit which improved firms' global competitiveness. However, the weak ringgit meant that imported raw material costs increased, leading to a rise in input prices. In fact, purchasing prices rose at the sharpest rate since February," said Amy Brownbill, an economist at Markit.