● Manufacturing Purchasing Managers’ Index (PMI) remained unchanged in April (48.8; Mar: 48.8)

- The manufacturing sector activity remained in contraction (below the neutral level: 50.0) for eight straight months or since September 2022, amid weaker demand following the global economic slowdown brought by tighter financial conditions and as the pandemic stimulus elapse.

● Overall demand remained subdued but was supported by improved external demand

- Output level eased slightly for the ninth straight month amid muted demand conditions.

- New orders eased due to muted demand as some firms reported a scaled-back in the size of orders.

- New export orders increased following nine months of softening, indicating a slight recovery in external demand despite the heightened risk of a global economic slowdown.

● Cost pressure persisted but at a moderate pace

- Input costs moderated in April, tracking the 34-month low posted in the previous month thanks to easing raw material prices. This enables some firms to offer discounts to customers, to boost demand.

● Business sentiment dipped to a four-month low

- Manufacturers hoped that demand would return over the next 12 months, but the degree of confidence eased to a four-month low due to current weak demand conditions.

- Further improvement in the supply chains due to less congestion at ports and slower demand for inputs.

- Employment increased for the fourth straight month but at a moderate pace.

● Mix manufacturing conditions among major economies in April

- US (50.2; Mar: 49.2): improved to a six-month high reflecting an expansion for the first time in six months on the back of a renewed upturn in new sales.

- Japan (49.5; Mar: 49.2): edged up to a six-month high on the back of continued economic recovery while remaining below the 50.0 threshold level.

- China (49.2; Mar: 51.9): unexpectedly declined, below the 50-point neutral mark amid subdued global demand.

● 2023 GDP growth forecast maintain at 4.7% (2022: 8.7%)

- Although manufacturing PMI remained at a contraction territory in April, the level is still relatively higher, at a sevenmonth high. This indicates that the manufacturing conditions remained on a recovery path and are relatively better than the 4Q22 level. Nevertheless, we believe the manufacturing activity could sustain a moderate recovery in the coming months, backed by the resilient 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%, driven mainly by domestic demand and policy measures under the Budget 2023. This will be further boosted by contributions from higher foreign tourist arrivals and the positive effect of China’s reopening.

Source: Kenanga Research - 3 May 2023