● Manufacturing PMI fell for the fifth straight month in January (46.5; Dec: 47.8), a 17-month low
- The manufacturing sector kicked off the year with a continued weak performance outlook as it remained at the contraction level (below the neutral level: 50.0) due to subdued demand.
● Muted demand and weak client confidence from domestic and external sectors
- Output level contracted for the sixth straight month and at the fastest pace since September 2021.
- New orders fell for the fifth straight month in January, its sharpest drop since August 2021.
- Likewise, external demand recorded a downtrend, with new export orders falling at the strongest pace since June 2021.
● Cost pressure persisted but at a slower pace
- Input costs expanded at a moderate pace and the slowest in 32 months due to lower prices in various inputs.
● Business sentiment remained positive for 2023 and the strongest since August 2019
- Firms are increasingly optimistic about future output amid hopes that domestic and external demand will recover in tandem with the global economic recovery.
- Staffing levels rose for the first time in four months, with firms employing in advance as recovery in demand is expected as well as to meet current orders.
● Manufacturing activity remained in a contraction phase among major economies due to subdued demand
- US (46.8; Dec: 46.2): flash manufacturing PMI remained in a contraction level but slightly higher than December readings due to falling output.
- Japan (48.9; Dec: 48.9): contracted for the third straight month and remained unchanged since December.
● 2023 GDP growth forecast retained at 4.3% amid uncertainty in the global economic outlook
- The latest manufacturing PMI reading signals a continued slowdown in the manufacturing sector, reflecting a weak start for 1Q23 growth amid subdued demand brought by uncertainty in the global economic outlook. This was further pressured by the ongoing Russia-Ukraine crisis and the impact of tighter financial conditions on the back of aggressive monetary policy tightening by global central banks. Therefore, we maintain our GDP growth projection for 2023 at 4.3%, which reflects a sharp moderation from the 8.6% estimated in 2022.
- Nevertheless, we still expect manufacturing growth to remain on a positive expansion albeit at a slower pace, primarily supported by the continued domestic demand and to benefit from China's economic reopening.
Source: Kenanga Research - 2 Feb 2023