Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid
PETALING JAYA: Amid current headwinds, the local manufacturing sector is anticipated to stabilise as it enters 2025 with the global electronics downcycle projected to bottom out.
According to the latest World Semiconductor Trade Statistics, the global semiconductor market is forecasted to grow by 12.5% next year, reaching an estimated valuation of US$687bil.
It said this growth is expected to be driven primarily by the memory and logic sectors, which are on track to each soar above US$200bil in 2025, representing an increase of more than 25% for memory and over 10% for logic compared to the previous year.
This bodes well for the Malaysian manufacturing sector, particularly the semiconductor business, industry experts noted.
OCBC senior Asean economist Lavanya Venkateswaran told StarBiz that the bank anticipates Malaysia’s manufacturing sector to stabilise in 2025, following the expected bottoming out of the global electronics downcycle in 2024.
“The growth rate for the global semiconductor market is expected to moderate to 12.5% year-on-year in 2025, versus 16% in 2024.
“This will likely imply a stabilisation of semiconductor production, even for Malaysia, by next year,” she added.
The manufacturing sector is one of the key drivers of the economy, which expanded by 5.3% in the third quarter of 2024.
The growth was primarily due to strong investment activity and continued improvement in exports.
OCBC Asean senior economist Lavanya Venkateswaran.
Meanwhile, TA Research is optimistic about the outlook for domestic manufacturing, noting that the Purchasing Managers’ Index (PMI), a key indicator of the sector’s future business conditions, is expected to continue expanding at a sustained pace despite sentiment easing slightly.
The brokerage noted that the average PMI reading for the first 10 months of the year remained resilient, reflecting sustained improvement in the growth of the manufacturing sector.
“Looking ahead, new-order growth is expected to continue over the coming year, bolstering optimism about the 12-month outlook for manufacturing production.”
TA Research was referring to the improvement seen in the average PMI for the first 10 months of 2024, which stood at 49.4, compared with 47.7 during the same period last year and the 47.8 average recorded in 2023.
The seasonally adjusted S&P Global Malaysia manufacturing PMI held steady at 49.5 even though the sector experienced a slowdown in October with subdued business conditions, as production volumes were scaled back more significantly compared to September.
The manufacturing PMI gauges the prevailing economic trends in the sector. A reading above 50 signals expansion, while a reading below 50 indicates contraction.
Economist and Williams Business Consultancy Sdn Bhd founder Geoffrey Williams said the manufacturing PMI has been below 50 for the past five months, from June to October 2024, signalling a contraction in the sector.
However, Williams noted that manufacturing sales have been growing this year, after contracting from June to December last year.
He explained that sales in the first half of 2024 are likely to be sales from inventory stocks, while actual sales have slowed from July onward.
Economist and Williams Business Consultancy Sdn Bhd founder Geoffrey Williams
Given this trend, the signal is that manufacturing sales will continue to contract or will be sustained by inventory stocks in 2024, but may improve in 2025 as the PMI is only slightly below 50, he added.
“There may be some push from higher exports but the appreciation of the ringgit makes exports more expensive.
“Thus, any extra export sales will depend on global economic growth, which is likely to improve in 2025 but the picture remains cautious.”
Williams highlighted that headwinds for the manufacturing sector may arise from caution related to possible US tariffs, which might hold back sales until the situation becomes clearer.
On the whole, this might benefit Malaysia but many are still in a “wait and see” mode,” he said.
Commenting on the manufacturing PMI, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the index is a reflection of sentiment among the manufacturers, which has mostly remained below the 50-point threshold.
Generally, he said manufacturers are pessimistic because the cost of doing business is rising, such as logistics, raw material and labour costs.
On top of that, there is a sense of anxiety over the global environment, especially geopolitical tensions, which are affecting supply chains.
“However, judging from the manufacturing sector’s Industrial Production Index, production activities have picked up pace from a 2.1% growth in the first quarter of 2024 (1Q24) to 4.9% and 5.8% in 2Q24 and 3Q24, respectively.
“On that note, manufacturers have been busy. So, we have a situation where manufacturers remain guarded and with Trump helming the United States presidency, we can expect the PMI to remain muted,” he pointed out.
Therefore, he said the PMI for 2024 and 2025 could linger around 50, or slightly lower.
On the headwinds that could impact local manufacturing activities this year and next, Mohd Afzanizam said these challenges would be externally driven.
“Trump’s policies on tariffs, China’s slowdown and geopolitical risks (relating to Ukraine and in Gaza) are likely to wreak havoc on the global financial and commodities markets, which could impact local manufacturing activities,” he said.
OCBC’s Lavanya agreed, stating that the biggest risks to Malaysia would be from external factors.
“The potential imposition of tariffs by the United States on key trading partners, geopolitical risks and lower-than-expected demand for semiconductors are key challenges to Malaysia’s industrial production outlook,” she said.
