Kenanga Research noted that despite the mild contraction, the manufacturing sector was still stable.
PETALING JAYA: Despite subdued numbers, the manufacturing sector remains on track for recovery towards the end of this year.
The recovery is expected to be fuelled by a rebound in the technology sector and improving economic conditions among the country’s major trading partners.
A survey by S&P Global showed that Malaysia’s manufacturing purchasing managers’ index (PMI) remained at 49.7 points last month, below the neutral level of 50 for the third straight month in August. The latest reading was similar to the number registered in July.
Kenanga Research noted that despite the mild contraction, the manufacturing sector was still stable.
“While the manufacturing PMI reading demonstrated a patchy recovery in the middle of the third quarter of 2024, we remain optimistic that the manufacturing sector would regain traction towards the end of the year,” the research house wrote in its report yesterday.
“This will be mainly driven by the technology upcycle, fuelled by higher demand for artificial intelligence (AI) and various stimulus measures in China,” it added.
However, downside risks persist, mainly from external factors such as renewed US-China trade tensions, the escalating Middle East crisis and the prolonged Russia-Ukraine war, Kenanga Research said.
“Despite uncertainty revolving around the global economic outlook, we retain our 2024 gross domestic product (GDP) growth forecast of 5% given the better-than-expected performance in the first half of 2024,” it noted.
“This is backed by solid domestic demand, underpinned by a continued increase of foreign tourists and spending alongside a stable domestic labour market, backed by the realisation of approved investment and continued policy support,” it added.
Meanwhile, TA Research said trend-wise, the performance of the manufacturing sector remained steady, with a promising year-to-date reading.
It noted that the average for the first eight months of the year stood at 49.4, an improvement over 2023’s average of 47.8.
“Additionally, the quarter-to-date data indicates that this positive trend of the manufacturing segment is likely to continue, with performance expected to remain broadly consistent with the rates observed in the second quarter,” TA Research said.
The research house pointed out that historical data showed a positive relationship between the PMI and official statistics, suggesting sustained improvement in both GDP and manufacturing production for the third quarter of 2024.
“We have analysed correlations between PMI figures and official metrics such as real manufacturing sector data, real GDP and real exports. The correlations are notably strong, at 62.2%, 60.4% and 44.2%, respectively,” it said.
“In the second quarter of 2024, the manufacturing segment of real GDP increased by 4.7% year-on-year. If the PMI figure for September remains around its current level, we can reasonably expect similar growth rates to continue,” it added.
TA Research pointed out that companies surveyed remained confident that output would improve over the coming year, with overall confidence levels solid.
“However, they expressed uncertainty about the pace of recovery, noting that downside risks are associated with a sluggish global economy,” the research house cautioned.
