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Malaysia: Better outcome for manufacturing, says report
PETALING JAYA: Despite heightened downside risks, economists generally expect domestic manufacturing activity to remain on a steady expansion curve this year.
According to Kenanga Research, the local manufacturing sector should stay on a recovery path, driven by positive external trade performance and a gradual pick-up in domestic economic activities.
“However, we still expect manufacturing growth to moderate at 5.7% in 2022, compared with 9.5% in 2021. This is due to the elevated external pressures associated with China’s zero-Covid policy and the Russia-Ukraine conflict,” the research house said in its note to clients.
On the other hand, the adverse effect is expected to be “minimal” due to Malaysia’s export diversification, said Kenanga Research, adding that this is backed strongly by the electrical and electronics sector, relatively high commodity prices and robust external demand from key trading partners.
“Against this backdrop, we maintain our second quarter of 2022 (2Q22) gross domestic product growth forecast at 7.7% from 5% in 1Q22,” said Kenanga Research.
“The full-year growth is expected to settle at 5% to 5.5% in 2022, from 3.1% in 2021,”
In July, the S&P Global Malaysia’s Manufacturing Purchasing Managers’ Index (PMI) expanded slightly to 50.6, from 50.4.
The factory activity improved for the second month, driven by an improvement in the production level amid increased orders, with output volumes returning to growth for the first time in seven months.
“Nonetheless, elevated raw material prices and supply constraints persisted, which weighed on the recovery, consistent with our view that the manufacturing sector is still surrounded by downside risks that could hinder its growth potential,” said the research house.
Kenanga Research pointed out the renewed rise in production levels in July, the first since December 2021, saw new orders increased for the fourth straight month and he fastest pace since April.
However, new export orders fell for the first time since March and at the quickest pace for 10 months, weighed by global supply chain issues and subdued external demand.
Having said that, Kenanga Research said firms remained optimistic, as sentiment improves amid hopes of a stronger recovery in demand once price and supply pressures ease.
Meanwhile, TA Research said: “To sum it up, Malaysia’s headline PMI for July was boosted by a resurgence in production.”
It concurred that this was the first expansion since December 2021, despite only a slight improvement with higher new orders.
Several businesses also claimed that high raw material prices and supply bottlenecks are hampering a more rapid rebound.
However, TA Research noted local manufacturers were more upbeat about output in the coming year.
“The overall degree of sentiment improved to the highest (in July) since February amid hopes of a stronger recovery in demand once price and supply pressures ease, following the lifting of pandemic restrictions,” it added.
The average PMI in 7M22 stood at 50.5 compared with 50.5 in 1H22 and 50.7 in 2Q22.
The historical relationship between the PMI and official statistics, such as real GDP, manufacturing production and trade performance, suggests a positive outcome in the third quarter of the year, TA Research said.
“As the growth of PMI manufacturing reflects a better outcome in the months ahead, we reiterate 2Q22 manufacturing real GDP to grow by 7.5% year-on-year (y-o-y) compared with 6.6% y-o-y in 1Q22,” it added.
Source: https://www.thestar.com.my/business/business-news/2022/08/03/better-outcome-for-manufacturing-says-report