• The Manufacturing Purchasing Managers’ Index (PMI) increased to 49.0 in April (Mar: 48.4), indicating a slight recovery from the previous month, although it remained below the neutral threshold of 50.0 for the 20th straight month
  
  − The improvement was due to a significant increase in external demand, marking the first improvement in 12 months. Contrarily, demand conditions in the domestic markets remained subdued.

• Production scaled back with demand remained softened
  
  − New orders moderated for the 20th straight month with a softer rate from the previous month. Contrarily, export orders recovered for the first time in twelve months.
  
  − Purchasing activity was scaled back at a lower rate. Consequently, the use of existing stocks for production led to the sharpest decline in the purchase of inventories for the year.

• Input cost inflation was driven by the weak exchange rate coupled with the rise in raw material prices
  
  − A continued increase in input cost subsequently led to a marginal rise in the output charges.

• Lower confidence level among firms, while hiring activities stabilise
  
  − Optimism eased due to the subdued demand environment, reaching the lowest level in eight months.
  
  − Nevertheless, employment levels stabilised after three straight months of decline.

• Mixed manufacturing conditions among regional economies
  
  − China (51.4; Mar: 51.1): The Caixin Manufacturing PMI retained the six-month streak of expansion in the factory activity which was due to the most notable rise of new orders in 12 months.
  
  − Vietnam (50.3; Mar: 49.9): Manufacturing PMI returned to the expansion level, driven by higher new orders.

• Manufacturing condition is expected to gradually recover in the near term, although it still lags behind regional peers
  
  − Our outlook is based on the expectations that China’s economic recovery to gradually improve alongside the imminent prospect of technology upcycle especially in the 2H24. Nevertheless, downside risks continue to persist, revolving around the potential impact of a higher interest rate environment led by the advanced economies. Additionally, heightened geopolitical tensions in the Middle East and the prolonged Russia-Ukraine war along with strained US-China relations, could negatively affect trade activities due to risks to the global supply chain. Nevertheless, we view the impact to be rather limited as Malaysia is expected to benefit from the trade andinvestment diversion.
  
  − Overall, we are keeping the 1Q24 GDP forecast unchanged at 3.3% (4Q23: 3.0%) compared to the Department of Statistics’s (DOSM) advance estimate of 3.9%. Growth is expected to accelerate in the 2H24 due to the lower base effect recorded last year. With that said, we maintain the overall 2024 GDP forecast at 4.5% - 5.0% (2023: 3.7%).

Source: Kenanga Research - 3 May 2024