● Manufacturing PMI expanded to 50.9 in February (Jan: 50.5), a two-month high

- Reflecting a resumption in manufacturing activity despite being pressured by ongoing raw material shortages and higher freight costs.

● Output and new orders moderated in February but were supported by higher purchasing activity and robust external demand

- Both output and new orders moderated due to ongoing raw material shortages and subdued domestic demand.

- Nonetheless, purchasing activity expanded as firms sought to secure raw materials.

- Meanwhile, foreign demand for Malaysian manufactured goods expanded at the fastest pace in ten months amid higher demand from the US and Asia. 

● Manufacturers remained optimistic about the future outlook

- Optimism remained relatively high for the eighth straight month, driven by hopes that the COVID-19 pandemic would recede along with a broad recovery in demand.

- Meanwhile, the employment level fell in February due to a lack of available foreign workers.

- Subsequently, backlogs of work rise at a slower rate since Aug 2021.

● Cost pressure persisted, both at input and output level

- Input costs further increased driven by higher raw material and freight costs, with firms continuing to partially pass higher costs onto clients, causing the factory gate prices to rise, albeit at a slower rate.

● Mixed manufacturing conditions among major economies

- Japan (52.7; Jan: 55.4): manufacturing conditions eased due to renewed rise in COVID-19 cases and sustained material shortages.

- US (57.5; Jan: 55.5): flash manufacturing PMI showed activity expanded in February, reflecting a stronger improvement in business conditions on the back of higher output and new orders.

● Bumpy road for manufacturing activity in the near term due to several downside risks

- This is mainly due to heightened downside risks such as the Russia-Ukraine crisis, surging commodity prices, elevated COVID-19 cases, ongoing raw materials and labour shortages, and China's zero-COVID strategy, which could prolong the global supply chain disruptions.

- Against this backdrop, we retain the 2022 GDP growth forecast at 5.5% - 6.0% (point forecast: 5.7%) (2021: 3.1%) with a high probability of revising it down in the near term.

Source: Kenanga Research - 2 Mar 2022