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Malaysia: Moderate factory activity likely

PETALING JAYA: After Malaysia’s manufacturing activity saw a muted expansion in July, ranking behind Singapore, Thailand, Indonesia, Vietnam and the Philippines, economists anticipate the momentum going forward to be “moderate”, at best.

Amid the threat of inflation, recession and supply chain disruptions, the recovery in factory activities would largely depend on how external headwinds pan out in the second half of 2022 (2H22), according to economists contacted by StarBiz.

However, an easing of external headwinds faster than expected could present a more favourable outlook for manufacturers.

In July 2022, the S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) rose to 50.6 from 50.4 in June. While it was only a marginal improvement, the PMI reading hit a three-month high in July.

S&P Global Market Intelligence said in a report that the headline PMI was buoyed by a renewed rise in production levels during July.

“Though only slightly, the expansion was the first since December 2021. Companies reported that increased new orders helped boost output.

“That said, some firms commented that raw material prices remained elevated and supply constraints persisted, holding back a stronger recovery,” it said.

S&P Global Market Intelligence pointed out that new order inflows increased at a quicker rate in the latest survey period, extending the current period of growth to four months.

The rate of growth was the strongest since April, albeit only marginal, and was attributed to improved client confidence.

“On the other hand, new export orders declined for the first time since March and at the quickest pace for 10 months amid global supply chain issues and subdued overseas demand.

“Input costs increased further in July, reflecting higher prices for a range of raw materials and freight costs,” it said.

Looking ahead, Centre for Market Education (CME) chief executive officer Carmelo Ferlito believes the monthly PMI performance in 2H22 would be between “a very moderate expansion and a regression”.

Looking ahead, Centre for Market Education (CME) chief executive officer Carmelo Ferlito believes the monthly PMI performance in 2H22 would be between “a very moderate expansion and a regression”.

Looking ahead, Centre for Market Education (CME) chief executive officer Carmelo Ferlito believes the monthly PMI performance in 2H22 would be between “a very moderate expansion and a regression”.

“There are positive elements, like a certain reopening of the labour market, but there are also uncertainties which may negatively weigh in such as elections, the international scenario and quite a confusion on the understanding of monetary phenomena like inflation,” he said.

Economist Manokaran Mottain opined that PMI will remain in the expansionary territory in 2H22, but only with marginal improvements.

“The slow macroeconomic conditions globally will surely take a toll on Malaysia.

“If there is no strong growth in orders from abroad, export-based manufacturers will be affected and this in turn would impact the PMI,” the former chief economist of Alliance Bank said.

Commenting on the PMI performance in recent months, Manokaran said the index readings of “borderline 50 points” did not show a real recovery momentum in manufacturing activities.

“PMI is an early economic indicator for three to six months ahead.

“With the PMI readings in the last three months only slightly above 50, it shows that we could see a slower gross domestic product growth momentum in 2H22,” he added.

Economist Manokaran Mottain opined that PMI will remain in the expansionary territory in 2H22, but only with marginal improvements.

Economist Manokaran Mottain opined that PMI will remain in the expansionary territory in 2H22, but only with marginal improvements.

In July 2022, Malaysia had the slowest recovery in PMI, compared to five other regional countries, namely Singapore, Thailand, Indonesia, Vietnam and the Philippines.

Singapore led the rankings table with a reading of 60, the highest reading ever recorded across all Asean manufacturers.

Thailand climbed up the rankings in July with a headline figure of 52.4, as business conditions improved at a quicker rate. In Indonesia, PMI was recorded at 51.3, although the overall improvement was modest.

Vietnam followed closely behind, and at a PMI reading of 51.2 in July, this was the weakest growth in the current 10-month expansion period.

The Philippines recorded a PMI of 50.8 in July, marginally higher than Malaysia.

On the other hand, Myanmar was the only Asean country to report a contraction across its manufacturing sector during July, with a PMI of 46.5.

“Expansions across the region as a whole improved marginally in July when compared to the previous month.

“Both production and factory orders increased, stretching the current sequence of expansion to 10 months each. That said, both sub-indices also hit four-month lows in July,” S&P Global Market Intelligence said.

Referring to Malaysia, S&P Global Market Intelligence chief business economist Chris Williamson said business conditions are improving yet remain tough, with firms struggling against headwinds of falling export demand, persistent supply constraints and rising prices.

Referring to Malaysia, S&P Global Market Intelligence chief business economist Chris Williamson said business conditions are improving yet remain tough, with firms struggling against headwinds of falling export demand, persistent supply constraints and rising prices.

Referring to Malaysia, S&P Global Market Intelligence chief business economist Chris Williamson said business conditions are improving yet remain tough, with firms struggling against headwinds of falling export demand, persistent supply constraints and rising prices.

“Looking at the historical relationship between the PMI and official statistics, the latest reading signalled that industrial production is now increasing gradually after broadly stagnating throughout the first half of 2022, to hint at an encouraging start to economic growth in the third quarter.

“A major uncertainty remains the path of global demand, as recession risks have intensified in the United States and Europe, which could severely limit any export-derived growth.”

Commenting on the risk of recession and the impact on Malaysia, CME’s Ferlito said the government should show the ability to navigate through uncertainties with sound and consistent policies.

“Fear of recession can be what creates a recession.

“Surely, we need more strength in our manufacturing sector and the signals that policymakers will be able to send in terms of consistency, openness and interference of the government with market forces (which presently have reached a peak in Malaysia) will play an important role,” he added.

Source: https://www.thestar.com.my/business/business-news/2022/08/02/moderate-factory-activity-likely