• 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
• 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.
• Relative stable manufacturing conditions among leading regional economies
• China (50.5; Nov: 51.5): Caixin manufacturing PMI remained on expansion for the second straight month, albeit at a slower pace, as overall expansion was partially weighed by weak external demand.
• Japan (49.6; Nov: 49.0): Softer contraction, indicating the manufacturing condition moving closer to stabilisation. Nonetheless, the PMI reading has remained in contraction for the sixth straight month.
• Outlook: Stable manufacturing conditions projected in 2025 driven mainly by export-oriented recovery
• The manufacturing sector is expected to benefit from the ongoing global tech upcycle and rising demand for Artificial intelligence (AI)-related products. Resiliency in the US economy, recovery in China's market, and expansion in the regional economies will continue to fuel expansion in the export-oriented sector. 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, our 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%).

Source: Kenanga Research - 3 Jan 2025