Public Invest Research said that in the short term, Malaysia’s manufacturing output is poised to closely track the trajectory of global semiconductor sales.
PETALING JAYA: While the local industrial production index (IPI) is expected to register a persisting deceleration in growth for the rest of the year, analysts say the sector is poised for a resurgence in 2024.
In September, the IPI registered a marginal contraction of 0.5% year-on-year (y-o-y) after recording a negative growth of 0.3% in the previous month.
The mining sector, which accounted for 25% of the index’s weight, declined 5.2% over the same period.
On the other hand, the manufacturing segment saw a 0.4% y-o-y increase in September, after contracting in the previous three months. This was largely driven by the domestic-oriented industries that posted a 5.9% gain.
With about 46% weightage in the index, the export-oriented industries recorded negative growth for the fourth month, posting a 2% contraction in September.
In October, the global, Asean and Malaysia’s purchasing managers index (PMI) fell below the 50-threshold level.
Public Invest Research said manufactured goods in September continued to exhibit a concerning y-o-y decline of 11.8%.
The research house foresees a 6.3% contraction in gross exports for 2023 as a whole, due to subdued external demand from key trading partners.
“The recently presented Budget 2024 indicates a projected 5.3% decline in exports of manufactured goods for 2023, primarily influenced by a substantial 10.4% decrease in non-electrical and electronic (E&E) products, outweighing the marginal increase in E&E product exports.
“Nonetheless, in the short term, Malaysia’s manufacturing output is poised to closely track the trajectory of global semiconductor sales, which registered a negative y-o-y growth of 4.5% in September.
“This downturn aligns with the World Semiconductor Trade Statistics projections, foreseeing a more significant double-digit decline of 10.3% in the global semiconductor market for 2023, following a modest growth of 3.3% in 2022,” it said in a report.
Public Invest Research said the World Trade Organisation (WTO) anticipated that trade will gain momentum next year, with a forecast growth rate of 3.3%.
Compared with the earlier estimate of 3.2% made in April, this is a marginal adjustment, which is in line with a consistent gross domestic product (GDP) growth rate of 2.5%.
“This year’s relatively subdued trade growth in comparison to GDP, followed by a reversal in 2024, aligns with the historical trends of industries sensitive to business cycles, particularly investments and durable goods.
“However, concerns arise as signs of supply chain fragmentation become evident, potentially posing a challenge to the relatively optimistic outlook for 2024,” it said.
Meanwhile, AmBank Research said that for manufacturing, among the segments contributing to the contraction in September were the manufacture of coke and refined petroleum products (down by 7.7%) and manufacture of textiles (down by 6.8%).
“The decline in export-oriented industries is replicative of Malaysia’s external trade performance, where overseas shipments have been contracting for seven months since March 2023, although posting an improvement in September with a smaller decline of 13.7%,” it said.
Nevertheless, AmBank Research reiterated its local GDP growth forecast of 4% and 4.5% for 2023 and 2024, respectively.
The research house also sees the situation improving next year, as the WTO is looking at a rebound in global exports.
“In addition to that, the International Monetary Fund has recently upgraded its GDP forecast for China by 40 basis points to 4.6% in 2024, hence offering some hopes for improved manufacturing activities.
“That being said, escalated geopolitical risks, prolonged period of high interest rates and uncertainty concerning China’s real estate market are key risk factors that could impair this outlook,” it said.
Meanwhile, Hong Leong Investment Bank Research, which maintained its 2023 GDP growth forecast at 3.8% y-o-y, said the global manufacturing PMI that further contracted at 48.8 in October (September: 49.2) reflected a further decline in new orders.
“The lack of demand led to further cautions among firms, causing them to scale back on their purchasing of materials and employment.
“In line with this, the current weakness in Malaysia’s industrial production is also likely to persist for the rest of the year, dampened further by tight financial conditions,” it said.
Additionally, TA Research said its attention is directed towards imminent data releases expected this week, as a more detailed perspective and profound insights into the factors influencing economic growth during this period is expected to be revealed in these releases.
“Specifically, we will closely monitor the Distributive Trade Index, which serves as a reflection of personal spending within the demand-side of GDP.
“Additionally, data from the service sector on the supply side and the comprehensive measure of construction activity, known as the ‘total work done’, are poised to contribute to our understanding of the current economic landscape,” it said.
