• The Manufacturing Purchasing Managers' Index (PMI) inched up to 48.7 (Dec 24: 48.6) in January but stayed below the neutral level for the eighth straight month
• The latest reading reflects prolonged manufacturing weakness since June 2024, subdued production, weak orders, and a declining purchasing activity and inventories.
• Weak production amid subdued demand
• New orders eased for the seventh month due to weak domestic and external demand. Notably, export orders fell for a second straight month and the sharpest drop since October 2023.
• Lower production requirements led firms to scale back purchases and remain cautious with inventory holdings.
• Firms slashed prices despite cost pressures
• Input cost rose slightly but stayed below the long-term average. To boost sales, firms slashed output prices for the first time since June 2023.
• Sentiment remains positive, but weak demand weighs on employment
• Employment levels were scaled back for the fourth month due to lower capacity needs.
• Despite weaker confidence - now at seven-month low - firms remain optimistic about future demand.
• Moderate manufacturing performance among leading regional economies at the start of 2025
• China (50.1; Dec: 50.5): Caixin manufacturing PMI slowed due to weaker employment and export orders.
• Japan (48.7; Dec: 49.6): fell for the seventh straight month on weak production and new orders.
• Outlook: Challenges persists, but tech cycle and trade shifts may offer support
• External factors: The manufacturing sector faces near-term headwinds from US policy shifts. However, the ongoing global tech upcycle and rising demand for Artificial intelligence (AI)-related products should provide support. While Trump's tariff hikes on China, Canada and Mexico, pose downside risks to our outlook, we expect Malaysia could benefit from trade diversion due to its diversified export base. Notably, Malaysia's exports to the US more than double since 2018 trade war, rising 118.7% from RM90.8b to RM198.6b in 2024.
• Domestic front: A stable labour market and stronger household income - boosted by higher minimum wages and government salary hikes - are expected to sustain domestic demand, with the unemployment rate is projected to fall to 3.1% (2024: 3.3%).
• GDP growth forecast: Hence, we maintain 2025 GDP growth forecast at 4.8%, slightly lower than the 5.0% estimated for 2024 (2023: 3.6%), as the economy normalises and adjusts to geopolitical risks and US tariff threats impacting global supply chains.

Source: Kenanga Research - 3 Feb 2025