Kenanga Research said it is optimistic the overall health of manufacturing conditions may gain further traction in the coming months.
PETALING JAYA: Renewed cautiousness has once again surrounded economic sentiment, following the fall in the manufacturing Purchasing Managers’ Index (PMI) last month.
This is the fourth consecutive decline in this economic indicator for Malaysia and sentiment going forward here may be influenced by geopolitical tensions in the Middle East which have flared up overnight.
Heightened tensions may subdue global demand and raise costs such as raw material costs for businesses and consumers.
The decline locally was also in line with the Asean region that also mainly saw decreases in each individual nation’s PMI.
Bursa Malaysia yesterday fell with losers outnumbering gainers by some four times with the benchmark FBM KLCI falling by some 1% to 1,639.31 points at the close.
Oil prices, meanwhile, saw a spike as Iran launched a barrage of ballistic missiles at Israel with Brent grade crude oil now priced at the US$75 per barrel.
Despite Malaysia’s PMI contraction in September, it still indicates a stable manufacturing sector condition as it is still close to the neutral level of 50.
Economists said September’s performance was largely due to a persistent moderation in production levels amid subdued new orders.
The PMI indicator for September fell slightly to 49.5 compared with August’s 49.7 and it was below the neutral level of 50 for the fourth consecutive month.Socio-Economic Research Centre’s executive director and economist Lee Heng Guie said the whole world appears to be very focused on the Iran-Israel tensions and the economic impact that may ensue if export demand is subdued.
“I believe this may affect the PMI and the broader economic outlook should it escalate and it appears to have the potential to move in that direction moving forward in the near future.
“Apart from this there are the United States elections that would be held in about a month that would also influence the global economy to some extent,” Lee told StarBiz.But possible upside support could come from developments in China although Lee said it is still “too early” to see if the latest economic stimulus there can help to prop up its economy.
“We have to closely monitor the developments in the Middle East and economic indicators may be affected with any escalation,” Lee said.
“But the manufacturing sector, which has regained traction in the second quarter, will continue to firm up in the absence of other downside risks. It will be supported by a recovery in exports, especially for the technology sector and also the domestic market-oriented industries such as building materials,” Lee added.
Meanwhile, Kenanga Research said it is optimistic the overall health of manufacturing conditions may gain further traction in the coming months.
“This outlook is supported by the expected positive impact of the upcoming Federal Budget 2025, along with increasing tourist arrivals and demand from South-East Asia.
“Notably, China’s latest stimulus measures, including efforts to revive its property market, should also act as a positive catalyst for Malaysia’s export-oriented manufacturing sector,” Kenanga Research said.
However, it noted that downside risks still persist due to geopolitical tensions, including the latest Israel-Lebanon crisis, the ongoing Israel-Palestine and Russia-Ukraine conflicts, as well as renewed US-China trade tensions.
Against this backdrop, the research house maintains its 2024 gross domestic product growth forecast at 5%, which it believes will be supported by stronger-than-expected performance in the first half and other economic indicators pointing to continued growth.
The PMI reading last month was affected by lower output amid muted domestic demand. New orders slowed for the third straight month, though the pace of decline eased, suggesting some stabilisation, Kenanga Research said.
“This was partly offset by rising new export orders, driven by strong demand from South-East Asia. Stocks of purchases and finished goods were reduced as firms remained cautious with inventory amid subdued production,” it said.
Meanwhile, MIDF Research said despite guarded optimism on future demand by manufacturers in the next 12 months, concerns about the global economic outlook and risks to recovery still remain.
“It was not a surprise that Malaysia’s PMI also declined in view of lower readings reported by other countries, signalling relatively weaker global manufacturing activities last month.
“Despite concerns over slower factory activities, we continue to expect Malaysia’s production activities will continue to grow in coming months,” it said.
“The growth is seen to be supported by continued recovery in exports, on the back of growing demand for manufactured goods and other commodities, and sustained rise in domestic spending,” MIDF Research added.
It reiterated its projections that Malaysia’s industrial production index will grow stronger at 4.2% compared with 2023’s 0.7%.BIMB Securities Research pointed out that Malaysia’s PMI decline was not in isolation as the moderation was also experienced in Asean.
“The Asean region’s manufacturing sector generally saw growth easing on this front, driven by weakening demand, with the headline PMI dropping to 50.5 in September from 51.1 in August.
“The decline was led by Indonesia at 49.2, Malaysia at 49.5 and Vietnam at 47.3,” BIMB Securities Research said.
