Malaysia: Manufacturing likely to remain subdued

PETALING JAYA: Manufacturing activities in Malaysia will likely remain subdued for the next several months amid soft global demand.

This follows the 10th consecutive month of the sector’s contraction, as indicated by the country’s manufacturing purchasing managers’ index (PMI) in June 2023, which remained below the 50-point threshold separating monthly expansion and contraction.

According to PublicInvest Research, Malaysia’s manufacturing PMI would continue to languish below the 50-point mark at least in the third quarter of this year.

“Against the backdrop of the tepid growth in the global economy, exacerbated by geopolitical tensions and volatility in global commodity prices, manufacturing output of the country is expected to follow the short-term cyclical weakening in the semiconductor industry, which has been experiencing sustained adverse growth,” it said in a report.

“We foresee a parallel trajectory between Malaysia’s manufacturing PMI and the broader global PMI, with the former projected to consistently register below the critical expansion threshold of 50 points, extending into at least the third quarter of 2023,” it added.

Overall, Public Invest Research projected that the growth of Malaysia’s manufacturing sector would come in slower at 2% in 2023, as compared with 8% last year.

It noted there were limited signs of a recovery in the electrical and electronics industry, despite a moderation in the pace of contraction this year.

Furthermore, the outlook for businesses was bleak, as companies had to contend with dwindling orders, both domestically and internationally.

The seasonally adjusted S&P Global Malaysia manufacturing PMI fell slightly to 47.7 last month from 47.8 in May.

TA Research said the correlation between the manufacturing PMI and official statistics such as real gross domestic product, manufacturing production, and trade performance indicated that the economic situation in Malaysia had remained lacklustre.

It noted that the average manufacturing PMI for the second quarter of 2023 was 48.1, slightly higher than the 47.9 points recorded in the first quarter of the year.

“The challenging conditions faced by the manufacturing sector have resulted in restricted demand and production levels at Malaysian manufacturing companies,” it said in a report.

Despite these challenges, TA Research noted that the survey by S&P Global Market Intelligence indicated that Malaysian manufacturers maintained a degree of optimism regarding the year-ahead outlook for output in June.

“They held hopes that demand would pick up in the second half of the year, providing a boost to sales.

“However, the overall level of optimism eased to its lowest point since July 2021, as businesses expressed concerns regarding the timing of the expected recovery,” it said.

Regionally, recent PMI readings indicated slower expansion of manufacturing activities for India (57.8), China (50.5), Thailand (53.2), the Philippines (50.9) and Myanmar (50.4).

Meanwhile, activities in Japan (49.8), South Korea (47.8), Taiwan (44.8) and Vietnam (46.2) contracted while activities accelerated in Indonesia (52.5).

In other parts of the world, manufacturing activities in the eurozone, the United Kingdom and the United States continued to fall, with the June PMIs at 43.4, 46.0 and 46.3, respectively.

MIDF Research said given the continued weakness in manufacturing PMI, the outlook for external trade and trade-oriented business activities in Malaysia and other countries would be constrained by softer global demand.

“In other words, this will likely continue in the next few months as rising borrowing costs and high inflation would hurt global demand,” it said.