KUALA LUMPUR: Malaysia's manufacturing Purchasing Managers' Index (PMI) expanded slightly to 52.8 in December compared to 52.3 in November last year, its highest level since April 2021.
Kenanga Investment Bank Bhd said this reflects a continued recovery in the manufacturing conditions in line with the relaxation of Covid-19 restrictions amid rapid progress of vaccination rate.
New orders rose to an eight-month high, underpinned by stronger consumer confidence which boosted demand in both domestic and international markets.
Similarly, new export orders returned to an expansion thanks to higher demand from the US and China.
Kenanga said the optimism was driven by hopes that the Covid-19 pandemic would recede and induce broad recovery in supply chains and the overall economy.
Meanwhile, Kenanga noted that the employment level fell due to the lack of foreign worker permits due to ongoing international border restrictions.
Concurrently, backlogs of work expanded, primarily reflecting the ongoing raw material and labour shortages.
The research firm also noted a mix in the manufacturing condition among major economies, with China PMI posting at 50.3 in December from 50.1 in November, expanding for the second straight month, as power shortages eased while raw material prices fell, subsequently easing pressure on manufacturers.
The PMI for the US fell due to increasing input prices and low employment growth.
"While we expect the domestic manufacturing sector to continue to recover, we retain our cautiously optimistic outlook given the spread of the Covid-19 Omicron variant in many countries.
"Nonetheless, we believe the impact would be less severe, given the current higher vaccinated population and aggressive vaccine booster campaign supported by sizeable fiscal and the unleashed pent-up demand.
"Against this backdrop, we retain 2021 gross domestic product (GDP) growth forecast at 3.5-4.0 per cent and to expand further to 5.5- 6.0 per cent in 2022.
"However, our forecast is still subjected to downside risks associated with the development of the Covid-19 new variant, as well as the ongoing raw materials and labour shortages," Kenanga said in a report today.