• The Manufacturing Purchasing Managers’ Index (PMI) remained at 49.7 in August (Jul: 49.7), below the neutral level for the third straight month
  
  − Although it is marginally contracting, the reading indicates a stable manufacturing condition given its closer to the neutral level of 50.0. The month’s performance was largely due to a persistent moderation in output and new orders.

• Production declined for the third straight month amid muted demand
  
  − New orders moderated slightly for the second straight month but were partially mitigated by improved external demand. This led to lower production in four months.
  
  − Additionally, stocks of finished goods were reduced as firms reported utilising existing stocks to fulfil orders.

• Inflation edged up in August amid persistent price pressure
  
  − Input cost increased due to higher raw material costs amid exchange rate weakness, subsequently leading to a higher output charge for the fifth straight month.

• Firms remained optimist on future output
  
  − The level of optimism remained solid, but still below the long-run average.
  
  − Meanwhile, employment levels fell slightly for the second straight month, as firms signalled a sufficient capacity amid lower outstanding business.

• Relatively improved manufacturing conditions among regional economies
  
  − China (50.4; Jul: 49.8): The Caixin Manufacturing PMI improved, returning to an expansion level following a briefcontraction in the previous month. Nonetheless, its official NBS Manufacturing PMI fell to 49.1 (Jul: 49.5).
  
  − Japan (49.8; Jul: 49.1): edged up slightly, moving closer to the neutral level, indicating a stable manufacturing performance during the period.

• Manufacturing sector expansion would depend on the pace of technology upcycle and the economic conditions of major trading partners
  
  − While the Manufacturing PMI reading demonstrated a patchy recovery in the middle of 3Q24, we remain optimistic that the manufacturing sector to regain traction towards the end of the year. This is mainly driven by the technology upcycle, fuelled by higher demand for artificial intelligence (AI) and various stimulus measures in China. However, downside risks persist, mainly from external factors like renewed US-China trade tensions, the escalating Middle East crisis and the prolonged Russia-Ukraine war.
  
  − Despite uncertainty revolving around the global economic outlook, we retain our 2024 GDP growth forecast of 5.0% given the better-than-expected performance in the 1H24. This is backed by solid domestic demand, underpinned by a continued increase of foreign tourists and spending alongside a stable domestic labour market backed by the realisation of approved investment and continued government policy support.

Source: Kenanga Research - 3 Sep 2024