● Manufacturing Purchasing Managers’ Index (PMI) edged up to a five-month high in March (48.8; Feb: 48.4)

- The manufacturing sector signalled a moderate recovery in March as 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 declined amid muted demand conditions, as production volumes were reduced for eight straight months.

- New orders eased at the softest pace in five months as some firms reported an increase in customer orders.

- New export orders declined at the softest pace since July 2022, reflecting a slight recovery in external demand.

● Cost pressure rise at a softer pace in 34 months

- Input costs moderated in March due to a reduction in oil price despite rising raw materials and packaging costs. Nonetheless, prices charged for goods were broadly unchanged, with some firms reported reduced prices in a bid to boost demand.

● Business sentiment remained positive in March

- Manufacturers remained optimistic that demand would normalise over the coming 12 months, but the degree of confidence eased to a three-month low.

- Further improvement in the supply chains due to less congestion at ports and higher employment during the month.

● Manufacturing conditions among advanced economies improved slightly but remained at contraction level

- US (49.3; Feb: 47.3): flash manufacturing PMI improved to a five-month high amid a renewed rise in production and improvement in new orders.

- Japan (49.2; Feb: 47.7): softer contraction in five months due to a reduction in both output and new orders.

- South Korea (47.6; Feb: 48.5): manufacturing activity dipped for the sixth month amid weak domestic and global economic conditions as well as persistent cost pressures.

● 2023 GDP growth trajectory remained at 4.7% (2022: 8.7%) for now

- Overall, the manufacturing PMI remained at a contraction level on average in 1Q23 (47.9) and relatively weak compared to the previous quarter (4Q22: 48.1), in line with our expectation of slowing growth trend in the manufacturing sector. Nevertheless, we believe the manufacturing activity could sustain a moderate recovery in the coming months, mainly supported by the domestic-oriented sector.

- Against this backdrop, we project a 5.1% GDP growth in the 1Q23, with 2023 GDP growth to settle at 4.7% backed by a resilient domestic demand and policy measures under the Budget 2023. This will be further boosted by higher foreign tourist arrivals and the impact of China's reopening.

Source: Kenanga Research - 4 Apr 2023