● Manufacturing PMI continued to lose momentum and weakened for the fifth straight month in November (48.4; Oct: 48.5)

− Renewed restrictions in Malaysia and in most countries around the world due to the resurgence in COVID-19 cases, has affected business operations and consumer demand, hampering recovery efforts.

● Output index continued to decline, albeit at a softer pace

− Attributable to a moderation in new orders and production resulting from the reintroduction of lockdown restrictions locally and abroad.

− New export orders fell for the eleventh consecutive month due to the restrictions implemented to combat COVID19. Surging infections in key markets, such as India, contributed to the persistent weakness in exports.

● Malaysian manufacturers increasingly optimistic despite scaling back production

− Manufacturers maintained their optimistic production outlook for next year, marking eight consecutive months of positive sentiment.

− Regardless, firms scaled back purchasing activity amid slower production and order volumes. Hiring seemed to stabilise as the pace of scaling back of jobs slowed to a six-month low.

− Firms continued to reduce outstanding business, however work backlogs declined at a softer pace.

● Cost pressure remained due to continued raw material shortages

− Firms reported sixth consecutive months of rising average cost burdens, as input cost inflation soared to a fourmonth high. Output prices continued to rise as higher costs were partially shifted onto customers.

● Major economies continued to register a favourable performance in the manufacturing sector

− China (54.9; Oct: 53.6): sharpest improvement in operating conditions since November 2010, as both output and new orders increased at the fastest pace in 10 years.

− US (56.7; Oct: 53.4): accelerated to a 74-month high, as manufacturers registered a marked expansion in output, largely driven by a notable uptick in new business as demand conditions improved.

− Within the ASEAN region, two of the six countries, namely Indonesia and Thailand, registered an improvement in manufacturing conditions in November (refer Table 1).

● Manufacturing sector may face a slower economic recovery as manufacturers continue to battle against the COVID-19 pandemic

− The continuous spread of the COVID-19 infections around the world is seen to further weaken the external demand, adding pressure on the pace of manufacturing sector recovery. In addition, the reimplementation of Conditional Movement Control Order (CMCO) in most states in Malaysia will likely dampen domestic activity in 4Q20.

− We have revised the value-added manufacturing growth forecast to -3.1% in 2020 (previous forecast: -6.3%; 2019: 3.8%) following its surprisingly stronger rebound in the 3Q20 (3.3%; 2Q20: -18.3%). Subsequently, we have revised our 2020 GDP growth forecast to -5.1% (2019: 4.3%) from -5.5% previously.

Source: Kenanga Research - 2 Dec 2020