● Manufacturing PMI expanded slightly to 52.8 in December (Nov: 52.3), its highest level since April 2021

- Reflecting a continued recovery in the manufacturing conditions in line with the relaxation of COVID-19 restrictions amid rapid progress of vaccination rate.

● Output and new orders rose in December

- New orders rose to an eight-month high, underpinned by stronger consumer confidence which boosted demand in both domestic and international markets.

- Similarly, new export orders returned to an expansion thanks to higher demand from the US and China.

● Manufacturers remained optimistic on future output

- Optimism was driven by hopes that the COVID-19 pandemic would recede and induce broad recovery in supply chains and the overall economy.

- Meanwhile, the employment level fell due to the lack of foreign worker permits on the back of ongoing international border restrictions.

- Concurrently, backlogs of work expanded primarily reflecting the ongoing raw material and labour shortages.

● Cost pressure persisted due to higher raw materials and freight cost

- Input costs increased for 19 straight months, but inflation rate eased. Likewise, firms partially pass higher costs onto clients.

● Mix manufacturing conditions among major economies

- China (50.3; Nov: 50.1): expanded for the second straight month, as power shortages eased while raw material prices fell, subsequently eased pressure on manufacturers.

- US (57.8; Oct: 58.3): fell due to increasing input prices and low employment growth.

● Manufacturing conditions may deteriorate in the near term due to the spread of the Omicron variant

- While we expect the domestic manufacturing sector to continue to recover, we retain our cautiously optimistic outlook given the spread of the COVID-19 Omicron variant in many countries. Nonetheless, we believe the impact would be less severe, given the current higher vaccinated population and aggressive vaccine booster campaign supported by sizeable fiscal and the unleashed pent-up demand.

- Against this backdrop, we retain 2021 GDP growth forecast at 3.5% - 4.0% (point forecast: 3.7%) and to expand further to 5.5% - 6.0% (point forecast: 5.7%) in 2022. However, our forecast is still subjected to downside risks associated with the development of the COVID-19 new variant, as well as the ongoing raw materials and labour shortages.

Source: Kenanga Research - 4 Jan 2022