DOSM report for October indicated the manufacturing PMI fell for the second straight month in October to48.7 which is a 13-month low, the sector remained in the contraction, indicating a weak demand amid subdued orders and output as well as lower hiring activity.
Weak production output in October, weighed by subdued demand conditions with new orders softened for a second straight month suggesting muted demand conditions. Similarly, new export orders moderated, indicating subdued external demand in line with the rising risk of global growth slowdown. Cost pressure persisted but at a softer pace amid higher input prices and weakness in the exchange rate − Input costs continued to increase, albeit at a slower pace, due to higher raw material prices and currency weakness. Likewise, output costs increased as firms adjusted selling prices.
Kenanga Investment however noted the business sentiment remained positive with sentiment level broadly in line with the historical average amid hopes for global market recovery and successful new product launches. Meanwhile, firms reported a scaling back in hiring mainly due to voluntary resignations rather than layoffs. Manufacturing activity eased further among major economies amid subdued demand − US: flash manufacturing PMI fell into contractionary reading for the first time since June 2020 amid a steep drop in new orders. − Japan: manufacturing activity edged down slightly in September, reaching its lowest level since January 2021 amid increasing economic headwinds.
The latest Manufacturing PMI reading suggests an easing in manufacturing activity momentum partly as the base effect dissipates, and the economy normalises post-pandemic. Nevertheless, Kenanga still expect the expansion in manufacturing activity to continue, albeit moderating, underpinned by sustained demand from the domestic and external sectors. The risk to the growth outlook remains tilted to the downside amid the global economic slowdown brought by the energy crisis in Europe, acceleration in global monetary policy tightening led by the US Fed, and uncertainty over China’s zero-COVID policy.
With these indicators, Kenanga forecast 3Q22 GDP growth to expand sharply at 10.9% (2Q22: 8.9%) before easing to 2.3% in 4Q22. This would bring the 2022 GDP growth to settle at between 6.5% – 7.0%. Going forward, it expects GDP growth to moderate to 4.0% – 4.5% in 2023, considering the imminent prospect of a global economic slowdown and rising external headwinds.
