• The Manufacturing Purchasing Managers’ Index (PMI) increased to 50.2 in May (Apr: 49.0), marking the first expansion since July 2022
  
  − The turnaround in the PMI was largely driven by the improvement in job creation, production and new businesses.

• Production marginally expanded backed by improved demand conditions
  
  − New demand orders led by improved external demand following higher export orders boosted the PMI to nudge above the negative threshold.
  
  − Nonetheless, the purchasing levels remained subdued as firms were cautious in their inventory holdings. Subsequently, this has contributed to the further moderation in the purchase of inventories for the year.

• Persistent price pressures in May due to higher raw material, transport and financing costs
  
  − Input cost remained inflated for four consecutive years.
  
  − Output prices inched up as manufacturers passed onto customers, to keep up with the continued rise in input costs.
  
  − Notably, the Suppliers' Delivery Times Index showed slightly longer lead times because of congestion at ports.

• Optimism among firms remained positive, but the level of confidence eased
  
  − Confidence waned, marking the lowest level in nine months, but improved demand conditions in May provide apromising positive outlook ahead.
  
  − Nevertheless, employment levels increased with robust hiring activity in May, marking the first increase since the end of 2023. This is to accommodate the workloads while enabled firms to reduce their backlog orders.

• Mixed manufacturing conditions among regional economies
  
  − China (51.7; Apr: 51.4): The Caixin Manufacturing PMI continued to expand for the seventh consecutive month atthe fastest pace in 23 months. The increase was backed by the notable rise of new orders and inflows of new work coupled with better local and international demand.
  
  − Vietnam (50.3; Apr: 50.3): Manufacturing PMI retained its two-month streak of expansion, albeit the rate of increase for new orders slowed from the previous month.

• Manufacturing export recovery remains intact in the near term, but lingering downside risks pose a concern
  
  − We continue to expect a robust recovery in the manufacturing sector and export-oriented industries in the secondhalf of the year. Our outlook is mainly backed by the technology upcycle coupled with the expected recovery of China’s economy and overall global trade activities. Nevertheless, the renewed trade tensions between China and the US alongside the ongoing tensions in the Middle East and the Rusia-Ukraine war, would likely pose a significant downside risk to the economic outlook due to the impact on global supply chain and trade activities. However, given the better-than-expected 1Q24 GDP growth at 4.2%, we firmly stand with our bullish outlook on GDP, with the estimated projection of 4.5% - 5.0% for 2024, which is appear to be aligned with both MoF and BNM projection of 4.0% - 5.0%.

Source: Kenanga Research - 5 Jun 2024