Asian PMIs: Japan eases back, India holds & Indonesia lifts to top of recent range - Westpac

Simon Murray, Research Analyst at Westpac, notes that PMIs in Japan retraced part of its recent bounce but the expansion pace remains above levels of Q3 2017.

Key Quotes

“A key factor here may be the effect of Lunar New Year holidays (mid-Feb 2018) on the Asia supply chain. On the other hand, India remained fairly steady and Indonesia rose due to an uptick in domestic activity.”

“India’s PMI is at 52.1 in Feb, down from 52.4 in Jan. Both output and exports are above average. Input and output prices have trended up in recent months in line with the increase in oil prices. While the RBI sees inflation cooling from the current 5.1%yr as food prices ease, energy costs are an upside risk.”

“Energy costs could also impede the growth recovery from the soft spot in mid 2017 associated with the GST implementation. Dec quarter yearly growth surprised to the upside at 7.2%yr (GVA 6.7%yr). The detail showed an 8.1%yr lift in manufacturing GVA while services also posted positive results. However it should be noted that this release was boosted by base effects with the Dec quarter of 2016 seeing a slowdown relating to demonetisation followed by a bounce in the Mar quarter. That said the Dec result is solid and supports the RBI’s GVA forecast of 7.2% for FY 18-19 (year to Mar quarter 2019).”

“Japan fell to 54.0 in Feb from 54.8 in Jan but this was still in line with December’s result.  In regards to the Lunar new year effect, new export orders dipped 3.4pts to 54.0, but are still higher than November’s 53.6. A key factor here going forward is the strength of the Yen. USDJPY has fallen from a peak of 114 in Oct 2017 to 106.7 currently. While that partly relates to some USD weakness, Yen has also been supported by higher volatility and a modest uptick in inflation. On that, the stronger Yen may already be providing a headwind against inflation pressures with the PMI data showing output prices easing in Feb to 51.7 from Jan’s 52.5 which was a high back to 2014.”

“Indonesian manufacturing had a good month in Feb, up 1.5pts to 51.4. Strength was consistent across output and new orders, while new export orders steadied from the previous month’s contraction. Employment printed at 51.4, the second highest level in the series’ history (51.6 is the high). The next few PMI outcomes will be important in assessing if the lift in Indonesia is evidence of an improving trend or just a bump in demand. Indeed, Indonesia’s PMI has bounced around a relatively narrow 48.4 to 51.4 range since July 2016.”