● Manufacturing PMI improved slightly to 52.3 in November (Oct: 52.2), its highest level since April 2021

- Manufacturing conditions improved in line with the relaxation of COVID-19 restrictions and gradual economic reopening under the National Recovery Plan (NRP) amid rapid progress of vaccination rate.

● Output and new orders expanded further in November

- New orders rose at the fastest pace since April 2021, underpinned by solid demand amid higher consumer confidence in domestic and international markets.

- Nonetheless, new export orders moderated, but the pace of reduction was mild, supported by higher demand from the Asia-Pacific region.

● Stronger sense of optimism on the back of an improved outlook

- Positive sentiment at the highest level since April, driven by hopes that national and international pandemic restrictions would be lifted.

- Similarly, the employment level expanded, the first time since March 2021, as additional capacity was required to fulfil orders. Nonetheless, firms consistently highlighted the difficulty in hiring especially cheap foreign labours.

- Concurrently, backlogs of work expanded at the second-fastest pace on record.

● Cost pressure persisted due to ongoing raw materials shortages, higher freight cost and delivery delays

- As a result, input costs increased consistently for one-and-a-half years and at the fastest rate since May, causing firms to partially pass higher costs onto clients, with the rate of inflation at a seven-month high.

● Improved manufacturing conditions among major economies

- China (50.1; Oct: 49.2): return to an expansion as power shortages eased in November, and subsequently improving manufacturing production.

- US (59.1; Oct: 58.4): flash manufacturing PMI reading expanded but remained pressured by raw material and labour shortages.

● Cautious outlook for manufacturing conditions in the near term due to the Omicron variant

- While the domestic manufacturing sector is expected to recover in the final quarter of this year, we are now penciling a cautiously optimistic outlook going into 2022. This is mainly due to the new COVID-19 Omicron variant discovered in South Africa and currently spreading in some parts of the world, while the European region is battling with another fresh wave of COVID-19. A potential surge in the number of infections due to the spread of Omicron and the reimposition of pandemic-related restrictions will hinder the pace of global economic recovery.

- Nonetheless, the impact may not be the same or severe as before, given the current higher vaccinated population, supported by continued fiscal and financial measures as well as the unleashed pent-up demand. Against this backdrop, we retain GDP growth projection at 3.5% - 4.0% (point forecast: 3.7%) in 2021 and to expand further to 5.5% - 6.0% (point forecast: 5.7%) in 2022. However, our forecast is still subjected to downside risks.

Source: Kenanga Research - 2 Dec 2021