ASEAN manufacturing recovery remains fragile

[WORLD] The ASEAN manufacturing sector showed a marginal improvement in May, with the S&P Global Manufacturing Purchasing Managers’ Index (PMI) rising slightly to 49.2 from 48.7 in April. This modest uptick was driven by softer contractions in output, employment, and input purchases, signaling a slight easing in the sector's downturn. However, the PMI still remains below the 50-mark, which separates expansion from contraction.

S&P Global noted that most key indicators—including new orders, output, employment, and inventories—continued to fall, though at slower rates. Supplier delivery times worsened, reversing the relative stability seen in the previous month. Encouragingly, cost pressures softened and companies raised prices only marginally, suggesting some relief on the inflation front.

Despite the minor improvement, both domestic and international demand weakened, with new orders dropping at the fastest pace since August 2021. Business confidence among ASEAN manufacturers remains historically subdued, reflecting ongoing uncertainty and low growth expectations for the remainder of the year.

Implications

For businesses, the data signals caution. Although the rate of contraction has slowed, persistent declines in new orders suggest that manufacturers may continue facing underutilized capacity and subdued demand. Investment and expansion decisions may be deferred, especially for export-oriented firms.

For consumers, easing cost pressures could translate to more stable prices for manufactured goods in the near term. However, this also reflects softening demand, which might indicate broader economic caution or a slowdown in household spending across the region.

From a policy standpoint, governments may need to weigh targeted support for manufacturers or domestic demand stimulation. With confidence levels still near post-pandemic lows, coordinated regional efforts—such as infrastructure spending or trade facilitation—could help sustain industrial momentum.

What we think

While the minor uptick in ASEAN's PMI offers a sliver of encouragement, the broader trend remains one of fragility. "The steep fall in new orders is particularly troubling," as it suggests not just cyclical weakness but potentially structural shifts in global demand patterns. The fact that delivery times lengthened despite lower activity levels hints at ongoing supply chain inefficiencies or input scarcities.

That said, the easing in cost pressures is a silver lining, potentially giving manufacturers more pricing flexibility and consumers some relief. Still, with confidence near multi-year lows, a meaningful recovery will likely depend on broader improvements in global trade, fiscal support, and regional coordination.

ASEAN’s manufacturing story in May was one of “less bad” rather than genuine improvement. Unless new orders pick up and sentiment improves, this rebound risks stalling. Cautious optimism is justified—but so is preparedness for a sluggish second half.