The Manufacturing Purchasing Managers' Index (PMI) eased sharply to 48.6 (Nov: 49.2), a seven-month low and below the neutral level for the seventh straight month. Kenanga IB noted that subdued demand from domestic and foreign markets led to lower production, reduced purchasing activity, and decreased stock. Nevertheless, input prices moderated sharply, which could lead to a softer inflation rate.
Subdued demand led to weak production
− New orders eased for the fifth straight month mainly due to lower demand from both domestic and overseas markets.
− Subsequently leading to lower purchasing activity and input stocks, as well as a decline in inventories of finished goods.
Persistent price pressure due to exchange rate weakness, but the rate of inflation eased sharply
− Input cost eased to a 55-month low amid lower prices for certain materials, leading to a marginal increase in output
charges.
Weak confidence levels and falling employment levels
− Employment levels fell slightly for the third month amid ample capacity and reduced outstanding business.
− Firms remain optimistic that production will improve over the coming year, albeit relatively unchanged from November's level
Outlook: Stable manufacturing conditions projected in 2025 driven mainly by export-oriented recovery
The house believes the manufacturing sector is expected to benefit from the ongoing global tech upcycle and rising demand for Artificial intelligence (AI)-related products. On the domestic front, steady domestic demand amid a stable labour market and improved household income due to higher minimum wages, government salary hikes and larger government spending to support the domestic-oriented sector.
However, Kenanga said the outlook remains susceptible to downside risks, particularly geopolitical tensions and the potential impact of renewed US-China trade tensions. Against this backdrop, we maintain 2025 GDP growth forecast to moderate slightly to 4.8% from a projected 5.0% in 2024 (2023: 3.6%).
