The ASEAN manufacturing sector experienced a slight slowdown in January, as the Purchasing Managers' Index (PMI) dropped to an 11-month low of 50.4 from 50.7 in December, according to an S&P Global report.

The modest improvement in operating conditions was fueled by only slight growth in order book volumes and output, which posted their weakest increases in almost a year. Amidst this deceleration in demand, manufacturers reduced input purchasing activity that had been growing at a more sedate pace. Despite softer demand, the backlogs continued to rise, indicating increasing pressure on production capacity. The latest increase in outstanding work marked the eleventh consecutive monthly uptick and was the steepest since September 2023.

ASEAN producers remain integral to global supply chains, producing some critical products such as electronics, textiles, and autos. Vietnam, Thailand, and Indonesia are some countries that are now like the other large production houses of the world, mainly due to cost efficiency, skilled labor, and good trade policies.

Digital transformation and investment in sustainability initiatives are further driving ASEAN's manufacturing sector toward global competitiveness. There were slight changes in employment trends in November and December, with only minimal reductions of the workforce. In January, hiring stabilizes. Firms continued to apply a steady destocking approach through careful purchases of finished goods relative to the current production needs given the persistence of supply issues.

The overall input cost inflation eased for the second consecutive month, with this being the lowest increase in operating costs since July 2023. Though there were fluctuations, business confidence among ASEAN manufacturers generally did not change from December. While firms expect their output to increase during the next year, overall optimism remains measured.