The manufacturing sector ended the year with a weak outlook as it remained at the contraction level (below the neutral level: 50.0), indicating a persistent weakness in demand due to subdued orders and external demand.
Weak production output amid subdued demand from domestic and external sectors − Output level remained in a contraction for the fifth straight month. − New orders fell for the fourth straight month in November, but the rate was slightly improved
compared to the previous month. − Similarly, external demand recorded a downtrend, with new export orders falling for the sixth straight month, in tandem with the rising risk of a global growth slowdown.
Cost pressure persisted but at a slower pace − Input costs increase at a moderate pace and are lowest in 31 months. Nonetheless, for the first time since May 2020, firms lowered their selling prices. Business sentiment remained positive for 2023 − Some firms expect that production will rise over the coming 12 months. However, concerns over potential demand remained relatively subdued in December, registering below the historical average. − Meanwhile, staffing levels softened for the second time, with firms citing the reason mainly due to voluntary resignations.
Manufacturing activity fell further among major economies due to subdued demand − US (46.2; Nov: 47.7): flash manufacturing PMI fell into contractionary reading for the second straight month in December amid a decline in output.
− Japan (48.8; Nov: 49.0): contracted for the second straight month to its weakest level since October 2020, weighed by weak demand and low output.
2023 GDP growth forecast retained amid uncertainty in the global economic outlook − The latest manufacturing PMI reading reflects an expected slowdown in the manufacturing sector, pointing to a sharp deceleration in 4Q22 growth, which matches our house expectation (4Q22F: 6.6%; 3Q22: 14.2%).
Kenanga maintains the GDP growth projection for 2022 at 8.6% and expects growth to moderate further to 4.3% in 2023.
− Nevertheless, we still expect manufacturing growth to remain on a positive expansion albeit at a slower pace, supported by the robust domestic demand and to benefit from China’s reopening despite the risk of recession in other major economies.
