● Manufacturing PMI edged up to a four-month high in February (48.4; Jan: 46.5)

− The manufacturing sector showed a surprise albeit moderate recovery in February amid post festive season period and despite shorter working month. Nonetheless, the PMI readings remained at the contraction level (below the neutral level: 50.0).

● Demand remained subdued but relatively improved compared to the previous month

− Output level moderated albeit to a lesser extent in six months.

− New orders eased for the six-straight month but at a slower pace in four months.

− Likewise, new export orders slowed amid muted external demand.

● Cost pressure persisted but at a slower pace

− Input costs rose to a three-month high in February but were lower than the 2022 average. This is mainly associated with higher raw material costs as well as an increase in packaging prices. Consequently, output price increased for the second straight month, albeit marginally.

● Business sentiment remained positive and relatively steady in February

− Firms' confidence was broadly steady amid positive expectations for future output in hopes that new orders will increase as market conditions improve.

− Staffing levels were maintained during the month following a slight increase in the preceding month. The additional hiring was somewhat offset by voluntary resignations.

● Mix manufacturing conditions among major economies

− China (51.6; Jan: 49.2): manufacturing activity returned to expansion level, ending its six months of contraction, reflecting a recovery momentum after the country scrapped its zero COVID-19 policy in December.

− US (47.8; Jan: 46.9): flash manufacturing PMI improved slightly to a four-month high but remained at a contraction level due to falling output caused by subdued demand.

− Japan (47.7; Jan: 48.9): contracted for the fourth straight month and lowest since August 2020 due to a sharp decline in new orders.

● 2023 GDP growth forecast retained at 4.7% (2022: 8.7%), banking on resilient domestic demand

− Though the latest manufacturing PMI remained in contraction territory, the overall condition seems to show nascent signs of recovery but not convincing enough for a sustainable growth momentum. Nevertheless, we believe there is a possibility that the manufacturing activity could sustain a moderate recovery in the coming months, supported by the domestic-oriented sector and sustained demand for exports.

− Overall, we maintain the 2023 GDP growth projection at 4.7% following a recent revision amid better-than-expected 4Q22 GDP growth. Nonetheless, growth will be continuously supported by resilient domestic demand and policy measures highlighted in the revised Budget 2023. This will be further bolstered by the influx of foreign tourist arrivals and spending as well as the impact of China's reopening.

Source: Kenanga Research - 2 Mar 2023