Highlights

Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Thu, 24 Sep 2020, 10:23 AM

 

Malaysia Manufacturing PMI - Manufacturing Sector Steady in July on Continued Recovery

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● Manufacturing PMI inched back tothe neutral level in July(50.0) after it rebounded sharply in June (51.0 ; May: 45.6), but well above the long-run average of 49.0

− Attributable to further relaxation on business activities via the Recovery Movement Control Order (RMCO) though slightly losing momentum compared to the level seen in the preceding month.

● Output index slowed after registering a record high expansion in June

− Output grew for the second straight month on improved trend in new orders, in line with the recovery in economic activity post strict MCO. However, momentum slowed on weak external demand, as reflected in softer new export orders.

● Degree of optimism down slightly forcing firms to scale back hiring

− Firms expect demand to strengthen for the next 12 months, subsequently supporting a better outlook for production in line with the gradual recovery in economic activity.

− However, hiring was scaled back for the fourth straight month as firms foresee a lack of pressure on operating capacity and rising input costs.

● Higher inflationary pressure on the back of supply shortages

− Input prices rose for the second straight month and at the fastest pace since October 2018, mainly due to supply shortages of raw materials.

.− Consequently, higher input cost was passed down by firms to consumers; output price surged to a 20-month high.

● Improved manufacturing conditions across the region

− China (52.8; Jun: 51.2): expanded for the third straight month on continued recovery from the fallout of COVID-19 pandemic, as businesses reported the fastest expansion since January 2011.

− Taiwan (50.6; Jun: 46.2): rebounded as production levels stabilised and new orders increased, indicating a renewed improvement in operating conditions.

● Cautious outlook in the manufacturing sector on fragile external demand

− While the manufacturing sector may demonstrate an improved business condition in the following months backed by the domestic-oriented activities, we remain cautious over the outlook going forward. This is premised on the fact that a resurgence in COVID-19 infections and the elevated geopolitical tension would weigh on the external demand, subsequently hampering the recovery of the export-oriented manufacturing sector.

− Against this backdrop, we retain the value-added manufacturing growth forecast at -6.3% in 2020 (2019: 3.8%) in line with the projected decline in 2020 GDP growth (-2.9%; 2019: 4.3%) which largely weighed by a deep contraction in 2Q20 growth estimated at -7.5% (1Q20: 0.7%).

Source: Kenanga Research - 4 Aug 2020

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