● Manufacturing PMI slid to 50.5 in January (Dec 21: 52.8), a four-month low, in line with slowing global PMI trend

- Recovery in the manufacturing conditions was hampered by the sustained raw material shortages and rising prices.

● Output and new orders pressured in January

- Both output and new orders moderated, as raw material shortages and rising prices weighed on demand and production capacity.

- Similarly, new export orders also moderated but at a softer pace supported by demand from the US.

● Manufacturers increasingly optimistic about future output

- Optimism reached the highest since April 2021, driven by hopes that the COVID-19 pandemic would end along with a broad recovery in demand.

- Meanwhile, the employment level stabilised in January as firms increased hiring to aid production. Nonetheless, businesses highlighted the difficulties in hiring foreign workers due to international border restrictions.

- Concurrently, backlogs of work expanded for the sixth straight month amid a lack of productive capacity.

● Cost pressure persisted due to difficulties in sourcing raw materials

- Input costs increased for the 20th straight month, with firms partially passing higher costs onto clients, causing the factory gate prices to rise.

● Slowdown in manufacturing conditions among major economies

- China (49.1; Dec 21: 50.9): fell sharply into contraction territory and lowest in almost two years due to COVID-19 lockdowns.

- US (57.8; Oct: 58.3): manufacturing activity eased in January to the lowest level since October 2020, as output and new orders lost momentum due to the spread of COVID-19 Omicron variant and persistent raw material and labour shortages.

● Manufacturing conditions may deteriorate in the near term as Omicron wave peaks

- Domestic manufacturing sector may endure a bumpy road in the near term due to the expected surging COVID-19 cases brought by the Omicron wave. Nonetheless, we believe the impact would be less severe and short-lived, given the current higher vaccinated population and aggressive vaccine booster campaign supported by sizeable fiscal expenditure and various ongoing support.

- Against this backdrop, we retain 2022 GDP growth forecast at 5.5% - 6.0% (point forecast: 5.7%). Meanwhile, GDP growth in 2021 is expected to settle within our projection of 3.5% - 4.0% (point forecast: 3.7%). However, we retain our cautious outlook for 2022 as our forecast is still subjected to downside risks associated with the development of the COVID-19 new variant, raw materials and labour shortages, and China's zero-COVID strategy, which could prolong the global supply chain disruptions.

Source: Kenanga Research - 4 Feb 2022