● Manufacturing PMI fell for the fourth consecutive month in October (48.5; Sep: 49.0)

- Manufacturing recovery was hindered by global and domestic resurgence of COVID-19 cases leading to the reimplementation of lockdown restrictions in parts of the country.

● Output index declined at a faster pace than September

- Attributable to a greater deterioration in new orders and production due to the reintroduction of lockdown measures to combat the spread of COVID-19.

- New export orders also continued to fall as international demand slipped amid a worsening pandemic situation in most parts of the world.

● Business optimism plummeted following September’s nine-month high

- Sharpest fall in outstanding business in almost two years following weak new order inflows and the depletion of work backlogs. Consequently, firms have continued to reduce input purchases and scale back hiring.

- Despite this, manufacturers expect production volume to rise and market demand to recover over the next year.

● Cost pressure remained due to material shortages

- Input costs rose for the fifth straight month due to raw material shortages and higher supplier charges. However, the rate of inflation has slowed slightly.

- Output price continued to rise at a marginal pace, as sellers found it difficult to pass on higher input costs to customers whilst simultaneously attempting to secure new orders by applying discounts.

● Improved manufacturing performance across major economies

- China (53.6; Sep: 53.0): expanded to its highest level since January 2011, on the back of a sharp rise in both output and total new work. Business confidence has also hit its highest level since August 2014.

- Eurozone (54.8; Sep: 53.7): four months of consecutive expansion, reaching a 27-month high, due to broad gains in new orders, new exports, and new business despite falling employment levels.

● Manufacturing output is expected to stagnate due to the resurgence of COVID-19 cases, locally and abroad

- The current resurgence of COVID-19 infections and the new lockdown restrictions will continue to hamper the recovery of the manufacturing sector. Furthermore, external demand will likely remain weak as the pandemic worsens in major export markets.

- We maintain 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 - 3 Nov 2020