KUALA LUMPUR: While manufacturing conditions appear to have improved globally, Kenanga Investment Bank Bhd expects a dreary outlook for the domestic manufacturing sector as exports appear to remain weak over the first quarter (Q1) 2018.
“We also see the weaker April trade figures in hi-tech power houses, South Korea and Taiwan, as an indication that the global tech upcycle has reached its peak.
“Moreover, as heightened China-US trade tension persists, manufacturers in Asia as a whole could possibly scale back on its production as a precaution,” it said.
Kenanga said pending the outcome of the US-China trade talk and rising uncertainties on the back of the upcoming 14th General Election, it has retained its gross domestic product (GDP) growth forecast at 5.5 per cent for 2018.
Manufacturing condition stumbled again for the third month in April as weak demand conditions continue to drag the Purchasing Managers Index (PMI) below the 50.0 threshold. April PMI came in at 48.6 (March: 49.5), the lowest in six months.
According to IHS Markit’s report, lower production requirements and subdued demand conditions led to the deterioration in manufacturing conditions, which exceeded the series trend.
In particular, output and new orders declined at an accelerated pace during the month, reflecting lackluster demand from both domestic and international markets on the back of ebbing economic growth.
New orders contracted to the fastest pace since July 2017 while new export orders fell to the lowest since December 2016. The weaker demand conditions also dragged output for the second consecutive month to the lowest level since July 2017.
Consequently, firms reduced their purchasing activities for the fifth consecutive month with both pre- and post-production inventories observing moderation during the month.
Meanwhile, sharper input inflation continues to raise prices of output, extending the current period of inflation to 18 months.
However on a bright note, input inflation appears to soften as input cost inflation remained broadly in line with the historical average, albeit still rising sharply.
Moreover, despite the overall softer manufacturing conditions, business sentiments surged to the highest in four and a half year as firms expect demand conditions to improve on the back of new projects.