ASEAN manufacturing outlook for 2023 softens as demand remains lacklustre

ASEAN manufacturers continued to experience a slowdown at the end of 2022, with December's PMI data indicating the softest output expansion in 15 months. The deterioration in growth conditions was underpinned by a quicker decline in new orders as the slowing of global demand continued to act as a headwind upon factories in the ASEAN region and more widely across Asia.

That said, inflationary pressures showed further signs of moderating in response to the easing of demand. While both input cost and output price inflation declined, input costs rose at a slower rate compared to selling prices for the second time in close to four years, reflecting more favourable conditions for manufacturers. Confidence amongst manufacturing nonetheless worsened once again amid concerns for the year ahead outlook.

ASEAN Manufacturing PMI edges near 50.0 with softer output expansion

The latest S&P Global ASEAN Manufacturing PMI posted 50.3 in December 2022, down from 50.7 in November. This marked the slowest expansion of the ASEAN manufacturing sector in the current 15-month growth sequence.

ASEAN Manufacturing PMI

Likewise for output, manufacturing production expanded at the slowest pace in 15 months. This nevertheless meant that the ASEAN region was the only region to see manufacturing output growth in December, contrasting with falling output in neighbouring countries, Japan and mainland China, as well as the US and eurozone. Manufacturing production stayed relatively resilient in ASEAN while major developed economies' goods producers suffered under the pressure of weaker demand, underpinned by higher costs, greater uncertainties and a general slowdown in economic conditions.

Manufacturing PMI Output

Demand for ASEAN manufactured goods falls faster at end of 2022

ASEAN Manufacturing PMI orders

The broad trend for ASEAN manufacturing output nevertheless remained one of slowing growth, and a quickening downturn in new orders in December does not bode well for the manufacturing production outlook going into the start of 2023. Manufacturing new orders deteriorated in all but two of the economies tracked ̶ the Philippines and Indonesia ̶ in December 2022. The lack of demand was also a key issue highlighted for many Asia economies towards the end of 2022, leading the broader Asia region to slip further into contraction as of November 2022.

While the contraction of new export orders slowed for the ASEAN manufacturing sector in December, the rate at which exports shrank remained faster than overall new orders, outlining the relatively weaker demand conditions outside of the ASEAN region relative to domestic demand. Amid expectations for Western economies to continue leading in tightening their financial market conditions into early 2023, the revival of demand may remain some distance away. Across Asia, however, the focus will be on mainland China after the taming of the latest COVID-19 wave, with hopes for further bounce back in economic conditions that could lead to better demand.

Inflationary pressures further abate

One unsurprising development with the slowing of demand for manufactured goods had been the abating of price pressures, which further unfurled in December 2022. Input costs and output prices both rose at slower rates to end the year. Furthermore, the gap between input cost inflation and output price inflation widened as input prices climbed at the slowest rate in two years, which is expected to aid in further easing of selling price pressures in the coming months.

To a large extent, this reflected the effectiveness of monetary policy getting a hold of prices into the end of 2022. That said, the concerns have evidently shifted towards recession risks, given the persistent policy tightening into a slowdown even in the final quarter of 2022. As it is, the likelihood of further tightening remains uncertain and varied across central banks in the ASEAN region, with the Fed's influence a key factor to continue watching.

ASEAN Manufacturing PMI prices

Future outlook remains under pressure

Assessing the road ahead, the only sentiment-based PMI indicator - the Future Output Index - revealed ASEAN manufacturers to be less optimistic about the year-ahead outlook in December 2022. Business confidence can be seen at a 16-month low amid the myriad of concerns, suggesting what may be a bumpy ride going into 2023. The latest Manufacturing PMI across the ASEAN region also revealed Singapore, a frontrunner for the past months and an export-dependent economy, to have slipped past the 50.0 neutral mark in December, outlining choppy waters that the ASEAN region would have to navigate in the new year.

Future output

Manufacturing PMI

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Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.