● Manufacturing PMI retained a downtrend, hitting a 4- month low in September (49.0; Aug: 49.3)

- The recovery momentum which emerged in June has continued to taper on a renewed weakness in demand, particularly at the external front.

● Output index declined for the first time in four months

- Reflecting further deterioration in new orders, largely attributable to falling export orders, as multiple countries grappled with a 2nd wave of COVID-19 infections, which has put a brake on economic activities’ return to normalcy.

● Degree of optimism spiked to a nine-month high

- Lifted by expectation of a rise in production volume over the next 12 months.

- Regardless, lower current production requirements have led firms to continue scaling back hiring – which has fallen for 6 months – and to reduce input purchases.

● Cost pressure persisted on input sourcing challenges

- Input cost rose for the fourth consecutive month on raw material shortages and higher price of imported items amid shipping issues following the reinstatement of COVID-19 restrictions in some countries.

- Despite this, selling price only increased marginally, as sellers were unable to hike prices as much given a weak demand condition.

● Major economies continued to register a solid manufacturing sector expansion

- China (53.0; Aug: 53.1): retained a solid expansion for the fifth straight month, with the steepest increase in new orders since January 2011, ending the job shedding observed in the past eight months.

- US (53.5; Aug: 53.1): fastest expansion in 20 months, underscored by further increase in new orders amid greater resumption of clients’ operations.

- Within the ASEAN region, Vietnam and the Philippines were among the exceptions, registering modest expansion in September (refer Table 1).

● COVID-19 resurgence, domestically and externally, poses risk to the manufacturing sector recovery

- The prospect of a manufacturing sector recovery is partly tainted by weakness in external demand following the retightening of lockdown measures in major export markets. Domestically, the elevated political instability and implementation of a Targeted Enhanced Movement Control Order are also exerting risk on factory operations and investment decision.

- As such, 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 (-5.9%; 2019: 4.3%).

Source: Kenanga Research - 2 Oct 2020