Crouching Tigers, hidden strengths

• May’s purchasing manager indices (PMIs) of business sentiment show Asia’s economies have become a weak link in the global recovery as fresh virus waves hurt the region.
• The US, UK and Eurozone’s PMIs are either at record highs or surging rapidly as fast vaccinations allow their economies to reopen.
• In contrast, sentiment is falling across Asia. But May’s PMIs also show signs of resilience as exports and commodities remain strong and firms and households adapt to new lockdowns.
• We expect Asia’s virus outbreaks will only hold back growth for one quarter this year, enabling the region’s economies led by China to rebound in the second half of 2021.

May’s purchasing manager indices (PMIs) show sentiment has reached record levels in the US and UK while also surging in the Eurozone. The first chart below shows composite PMIs - for both manufacturing and services - hit 68.7 in the US, 62.9 in the UK and 57.1 in the Eurozone. A print above 50.0 shows firms expect orders to rise.

Source: Bank of Singapore, Bloomberg

For other Asian economies the hit has been worse with manufacturing PMI sliding to 47.8 in Thailand and 51.3 in Malaysia and composite PMI plunging in India to 48.1 as the last chart shows.

Source: Bank of Singapore, Bloomberg

But Asia’s PMI data also show signs of resilience. First, strong global demand for manufacturing exports is keeping business confidence in solid expansionary territory in China and South Korea and near record highs in Taiwan despite its fresh virus outbreak. Second, demand for commodities led to Indonesia’s PMI rising to 55.4 in May. Third, the current weakness in PMIs is far less than last year as firms and households adapt to new lockdowns. We thus expect activity to be held back for one quarter only, enabling Asia’s growth to rebound in the second half of 2021.