● The Manufacturing Purchasing Managers’ Index (PMI) increased in January to 49.0 (Dec: 47.9), reaching its highest level since September 2022 and signalling a renewed recovery at the start of 2024

- This improvement is primarily attributed to increased demand. However, the index has remained in contraction (below the neutral threshold of 50.0) since August 2022 due to the prolonged downturn in global trade activity.
 

● Productions eased for the 18th consecutive month, but the decline was softest since April 2023

- New orders moderated for the 17th consecutive month, but the pace was the softest recorded since October 2022.

- New export orders declined for the ninth straight month and at the softest pace.

- Purchasing activity was scaled back amid subdued demand conditions, leading to lower inventories.
 

● Weak currency and high raw material costs continue to exert cost pressures

- Input cost edged up at a slower pace in eight months. The inflation was mainly associated with exchange rate weakness and higher raw material prices, resulting in a slow but steady increase in output prices.
 

● Manufacturers remain confident in future outlook

- The degree of optimism increased slightly from December as firms expect demand conditions to improve.

- Nevertheless, employment levels moderated for the eighth month, but the rate of job cuts being only fractional.
 

● Sustained increases in manufacturing conditions among regional economies

- China (50.8; Dec: 50.8): The Caixin Manufacturing PMI remained unchanged in January, reflecting a continued expansion in China’s manufacturing sector amid sustained increases in output and new orders.

- South Korea (51.2; Dec: 49.9): Manufacturing PMI expanded above the neutral level mainly due to higher new orders, indicating a renewed improvement in operating conditions at the start of 2024.
 

● Recovery in manufacturing conditions is expected to gradually pick up pace in the near term

- We maintain our outlook that domestic manufacturing conditions, especially in the export-oriented sector, will continue to recover. This has already been demonstrated in the latest Manufacturing PMI, which showed signs of recovery at the start of 2024. The expansion is expected to pick up pace towards 2H24 as we project the upswing in the technology cycle and China’s gradual recovery to benefit Malaysia’s exports going forward.

- Nevertheless, the risk to our outlook remains mainly associated with external factors such as rising geopolitical tensions, which could disrupt the global supply chain and potentially weigh on global trade activity. Against this backdrop, we retain a 2024 GDP growth forecast at 4.9%, up from an estimated 3.5% - 4.0% in 2023 (2022: 8.7%).

Source: Kenanga Research - 2 Feb 2024