- Driven by stronger demand, in spite of the renewed weakness at the external front.

- 2019: averaged lower at 48.4 (2018: 49.4), in line with the expected slowdown in GDP growth (4.5%; 2018: 4.7%).

● Output index and overall new orders rose to a 15-month and over 1-year high, respectively

- Primarily supported by strength in domestic demand amid successful project tenders and improved sales to existing clients.

- New export orders stagnated on moderating economic growth in major export markets.

● Business optimism strengthened to highest in the past six years, incentivising firms to increase stockpiles

- Input purchases accelerated to a 15-month high, resulting in extension of the supplier delivery times to the longest in ten months.

- Employment remained unchanged on ample operating capacities as backlogs declined for the 16th straight month.

● Input costs picked up on unfavourable exchange rates and higher commodity prices

- To cope with the rising input cost and reflecting confidence in consumers’ purchasing power, firms increased output charges at the fastest pace in 13 months.

● Mixed manufacturing performance across regions

- Eurozone (flash: 45.9; Nov: 46.9): 11th successive month of decline, on the back of continued decrease in output and new orders, causing firms to cull headcounts at the fastest pace since October 2012.

- US (52.5; Nov: 52.6): broadly sustained, but with concerns on rising input cost as suppliers were pressured by the tariffs on Chinese imports.

- China (51.5; Nov: 51.8): lowest expansion in three months and weaker business confidence despite positive developments surrounding the US-China phase-1 trade deal.

● Signs of recovery for the manufacturing in the 2H20

- Manufacturing sector to soften in the 1H20, before gradually recovering in the 2H20 on potential upturn in the tech sector and lagged impact from the recent cycle of monetary easing and as government steps up fiscal spending.

- Headwinds remain arising from developments on the US-China trade negotiation and pace of economic expansion of key trading partners.

- Overall, the sector’s growth is projected to moderate slightly to 4.2% in 2020 (2019F 4.5%; 2018:4.8%) in line with the slower GDP growth forecast of 4.3% (2019F: 4.5%).

Source: Kenanga Research - 3 Jan 2020