• Manufacturing activity across ASEAN countries remained unchanged.

• Malaysia PMI reached a seven-month high.

• Input cost inflation remains evident.

• China's manufacturing sector has rebounded.

In November, the Malaysian manufacturing sector continued to slow down due to subdued demand conditions. Still, there were some positive signs: new orders, output, and employment slowed down less, while business confidence hit a sevenmonth high. The ASEAN manufacturing sector's overall operating conditions remained the same, signaling the conclusion of a two-month contraction period. The November Manufacturing PMI data across ASEAN countries underscored ongoing weakness in current demand trends; Malaysia (Nov: 47.9; Oct: 46.8), Thailand (Nov: 47.6; Oct: 47.5) and Vietnam (Nov: 47.3; Oct: 49.6). Yet, the region's performance was supported by the Indonesia (Nov: 51.7; Oct: 51.5), Philippines (Nov: 52.7; Oct: 52.4), Singapore (Nov: 51.7; Oct: 48.6).

Indonesia's manufacturing sector continued to grow steadily in the middle of the fourth quarter. They saw a bit faster production growth due to more orders and a larger workforce amid input price inflation rising. The Philippines' manufacturing sector sustained its growth, fueled by increased demand conditions that led to faster expansions in both new orders and output. Meanwhile, Thailand's manufacturing sector faced ongoing challenges due to weakening demand conditions. The decline was driven by a significant drop in new work intakes, alongside a decrease in export orders. Also, reduced demand in November caused Vietnamese manufacturers' new orders to drop, resulting in a more pronounced decline in production. Firms hiked prices for the fourth straight month due to the fastest rise in input costs since February.

The Caixin manufacturing survey in China highlighted that Chinese manufacturing firms signaled a new upturn in the sector's health during November (Nov: 50.7; Oct: 49.5). Factory production increased marginally for the third time in the last four months, supported by a continuous increase in new orders. Although there was a slight decline in new export business, firms often attributed this to subdued global demand conditions. During this period, manufacturers saw a small decrease in staffing and a slight increase in purchasing, while feeling more optimistic about the year ahead. Further, input costs rose modestly, slower than usual, while selling prices stayed the same. Conversely, the data from the National Bureau of Statistics (NBS) highlighted that China's factory activity continued to weaken with the PMI contracted for a second consecutive month to 49.4 (Oct: 49.5) in November. This suggests that the world's second-largest economy is still facing challenges and might need stronger policy support.

In short, the ASEAN manufacturing conditions improved slightly in November. Input cost inflation remains evident, resulting in higher selling prices across most countries. The outlook for the ASEAN manufacturing sector performance will be negative if customer demand continues to decline.

ANALYSIS: MALAYSIA NOVEMBER MANUFACTURING PMI

The Malaysian manufacturing sector slowed down further in November due to subdued demand conditions. Despite this, there were signs of improvement, causing less severe slowdowns in new orders, output, and employment, while business confidence hit a seven-month high. Input and output prices slightly rose due to the weaker ringgit against the US dollar, but the increases were modest. Malaysia's PMI reached a seven-month high (Nov: 47.9; Oct: 46.8). The reading indicated a mild decline in the sector's health. For the fifteenth month in a row, new orders decreased due to weak demand, including in international markets. Production softened at the slowest rate in three months, but the slowdown remained significant. Employment almost stabilized, showing the second-lowest decline in the ongoing seven-month period, which often linked to resignations.

Moreover, input cost inflation reached a one-year high due to currency weakness and increased global prices for raw materials. Nevertheless, the inflation rate stayed below the series average. Output price inflation remained relatively subdued in November. Yet, due to higher costs, firms raised their prices for the fourth consecutive month. Simultaneously, Malaysia’s Producer Price Index (PPI) in October returned to deflation, declining by -0.3%. The decline was primarily caused by the manufacturing sector's PPI, which dropped by 0.7% last month (Sep: -0.8%). We expect the input cost inflation to decrease, leading firms to reduce their prices.

OUTLOOK

Considering the subdued state of the manufacturing sector, we approach the nearterm outlook cautiously. The uptick in business confidence indicates that these initial improvements might have the potential to continue into 2024. If this is the situation and demand begin to strengthen significantly, there's potential for notable growth to be observed soon albeit with cautious optimism. It is anticipated that the manufacturing sector will echo the current cyclical upturn observed in the electronics and semiconductor industry trade cycle which has likely bottomed with recovery in the next few quarters. On a positive note, the relatively subdued price pressures could potentially bolster growth in the upcoming months. Looking ahead, we anticipate minimal pressure for local producers to increase prices as Malaysia's Producer Price Index (PPI) is still below the Consumer Price Index (CPI), and this could strengthen consumer demand.

Source: BIMB Securities Research - 4 Dec 2023