• The Manufacturing Purchasing Managers’ Index (PMI) edged up in February to 49.5 (Jan: 49.0), reaching its highest level since August 2022 and signalling a further recovery towards growth stability
  
  − 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 subdued global trade.

• Production eased for the 19th consecutive month, but the moderation was mild and the softest since August 2022 amid some signs of recovery
  
  − New orders and export orders moderated for the 18th and 10th consecutive month respectively, but the moderation rate was smaller.
  
  − Stable purchasing activity as some firms increased input buying to match output requirements, while firms opted to further scale down inventories.

• Weak currency and high raw material costs continue to exert cost pressures
  
  − Input cost continued to increase, with the rate highest in three months. However, the pace was softer than the long- term average. Likewise, higher cost was associated with exchange rate weakness and increased raw material prices, resulting in a slight increase in output prices.

• Optimism and employment levels eased
  
  − The degree of optimism eased to a six-month low. However, there is no justification provided in the report. As usual,firms expect demand conditions to improve and price pressure to stabilise.
  
  − Employment levels declined slightly as some firms cut operating costs. Nonetheless, the decline was partially mitigated by some firms which opted to hire additional full-time staff as demand recovers.

• Slight improvement in manufacturing conditions among regional economies
  
  − China (50.9; Jan: 50.8): The Caixin Manufacturing PMI inched up slightly, reflecting a sustained improvement inChina’s manufacturing sector thanks to increases in production and new orders in part due to rising export orders.
  
  − Vietnam (50.4; Jan: 50.3): Manufacturing PMI edged up slightly, driven by higher output and new orders as well as an increase in employment.

• Manufacturing conditions are expected to find support from a gradual improvement in external demand
  
  − We reiterate our outlook that domestic manufacturing conditions, especially in the export-oriented sector, tocontinue recovering in the coming months. This is largely driven by the expectation of technology upcycle which is likely to appear more imminent in the 2H24. Additionally, China's gradual economic recovery is expected to pick up pace given the significant amount of stimulus from the government.
  
  − Nevertheless, the downside risk to our outlook remains associated with external factors such as escalating geopolitical tensions in the Middle East and Eastern Europe which could disrupt the global supply chain and potentially drag global trade activity into a prolonged downturn. Against this backdrop, we maintain our 2024 GDP forecast of 4.5% - 5.0% (2023: 3.7%).

Source: Kenanga Research - 1 Mar 2024