• Manufacturing PMI slipped slightly to 48.9 (Dec: 49.1)
  • The deterioration in the manufacturing sector at the start of 2021 reflects the impact of rising COVID-19 cases and curbing measures to stem the spread of the virus as the government reimposed Movement Control Order 2.0 (MCO 2.0) and declared a state of emergency.
• Output, new orders, and export sales remained subdued
  • Both output and new orders were trimmed down in January, as market demand weakened by the pandemic and movement restrictions.
  • Export sales moderated due to MCO 2.0 and restrictions imposed in some external markets, which also disrupted supply chains.
• Malaysian manufacturers remained optimistic but at the softest level
  • Positive sentiment continued for the tenth straight month. However, the level of optimism eased to a five-month low largely due to concerns of COVID-19 resurgence and its new strain. Nevertheless, manufacturers expect domestic and external demand to recover over the next 12 months.
  • Employment levels edged down slightly, and some firms reported a shortage of workforce.
• Cost pressure persisted in both input and output prices
  • Firms reported an eighth straight month of rising input costs, the fastest since May 2017 due to disruptions in the supply chain. The higher costs were passed down to clients, resulting in the sharpest rise in output prices since April 2018.
• Global manufacturing recovery faltered in January but relatively remain strong
  • China (51.5; Dec: 53.0): expanded at a slower pace in seven months as the COVID-19 resurgence in some parts of the country hit business sentiment.
  • Euro Area (54.8; Dec: 55.2): expanded at a softer rate as renewed lockdown measures and supply shortage adversely affect manufacturing activity.
• Manufacturing sector to remain resilient and gradually recovers as the impact of COVID-19 is expected to abate in 2H21
  • The persistent rise in COVID-19 cases both domestically and globally and its curbing measures to contain the virus will continue to disrupt demand and supply chain in the near term and specifically in the 1Q21. Nonetheless, we expect the recovery to resume modestly going into 2H21 on the back of wider rollout of vaccine and gradual restoration of market demand and supply chains.
  • Consequently, we have revised the value-added manufacturing growth forecast to 5.4% from 5.6% in 2021 (2020F: -3.1%) in line with the projected albeit weak rebound in 2021 GDP growth (3.9%; 2020F: -5.3%).

Source: Kenanga Research - 2 Feb 2021