Malaysia's factory activity is expected to stage a rebound this year despite persistent risks in the global economy.
PETALING JAYA: There is light at the end of the tunnel for Malaysian manufacturers that have been scaling back their production for nearly one-and-a-half years.
The country’s factory activity, which has contracted for 16 straight months up until last December, is expected to stage a rebound this year despite persistent risks in the global economy.
The major catalysts for the expected reversal are China’s recovery, improved trade, a potential upswing in the technology sector and a resilient domestic economy.
In December 2023, Malaysia’s S&P Global Purchasing Managers’ Index (PMI) was unchanged at 47.9, indicating that business conditions remained challenging for manufacturing firms.
A PMI reading below 50 points indicates contraction in factory activity.
It is noteworthy that Malaysia’s PMI reading has remained below the 50-point threshold since August 2022.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, however, said there is a “chance” for Malaysia’s PMI to turn around in 2024.
The rebound in activities will be seen more in semiconductor-related sectors, he told StarBiz.“The latest World Semiconductor Trade Statistics has projected that the Global Semiconductor Sales (GSS) would grow 13.1% in 2024 from the previous forecast of 11.8%.
“For 2023, it is estimated that GSS contracted by 9.4%.
“Perhaps, the anticipation for lower interest rates could also help improve business sentiment because lower interest rates would reduce their cost of borrowings and also show the government’s commitment to support growth,” he said.
Bank Muamalat, in its 2024 outlook report, had projected the manufacturing sector to grow by 4% in 2024 from an estimated 1.5% in 2023.
The stronger growth is expected as recovery in the semiconductor-related sectors will help to lift the export-oriented industries’ performance.
As highlighted in the latest PMI report, Malaysian manufacturers are also confident about an upcoming rise in production over the next 12 months.
MIDF Research, in its economic brief, foresees demand outlook to gradually pick up and provide support to regional trade recovery.
“We believe this explains the continued optimism indicated by the local manufacturers,” it said.
Meanwhile, TA Research opined that new orders will rebound in the local manufacturing sector.
“The existing subdued demand environment has kept optimism levels relatively steady since September, though concerns persist regarding the speed and timing of the anticipated recovery,” it said.
Referring to the S&P Global PMI report, TA Research said manufacturers scaled back production but the moderation was the slowest recorded since August.
Meanwhile, stocks of finished goods were wound down at the fastest pace since September, as firms used existing stocks to fulfill orders.
On a positive note, TA Research said Malaysian manufacturers exhibited resilience in the face of challenging market conditions by increasing employment levels for the first time in eight months.
“Simultaneously, companies managed to reduce their outstanding business at a marginal rate, marking the slowest pace since August 2022.
“Although the most recent PMI data indicates subdued demand conditions in the Malaysian manufacturing sector as of the close of 2023, S&P Global affirms that the findings align with modest growth in official statistics,” it added.
Malaysia was not the only country in the region to face a contraction in factory activity in December.
Among the seven Asean nations under observation, manufacturing conditions were weak as well in four other countries, namely Myanmar (42.9), Thailand (47.9), Malaysia (47.9) and Vietnam (48.9).
Nevertheless, some countries showed an improvement in their operating conditions, led by the Philippines (51.5), Singapore (52.0), and Indonesia (52.2).
In summary, the Asean manufacturing sector concluded the year on a subdued note, scoring 49.7, a decline from the previously recorded 50 points.
In Malaysia, new export orders fell for eight consecutive months, but the pace of decline at the softest rate since May.
Kenanga Research noted that although manufacturers remained concerned about the pace and timing of a recovery, the degree of optimism remained broadly stable since September.
“The manufacturing PMI is expected to gradually improve in the near term, attributed to the potential upswing in the technology sector and China’s gradual recovery, both of which are expected to contribute to an improvement in Malaysia’s export performance moving forward.
“Nevertheless, our outlook remains cautiously optimistic, as rising geopolitical tensions could disrupt the global supply chain and potentially impact global trade activity,” it said.
Against this backdrop, Kenanga Research retained its gross domestic product (GDP) growth forecast for the fourth quarter of 2023 (4Q23) at 3.7%, as compared to 3.3% in 3Q23.
The stronger sequential growth is likely to be supported by a resilient domestic demand, bolstered by year-end festive spending and a continued increase in tourist arrivals.
“Hence, we expect 2023 GDP growth to align with our projection of 3.5% to 4.0% (2022: 8.7%) and anticipate it to expand to 4.9% in 2024,” it said.
