Manufacturing performance expected to improve, driven by external demand

KUCHING: Malaysia’s manufacturing performance is expected to improve, driven by further improvement in external demand, analysts observed.

In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) said it expected Malaysia’s manufacturing index to stay at 4.6 per cent, an improvement form 0.7 per cent in 2023. “Manufacturing performance is expected to improve, driven by further improvement in external demand backed by the technology sector’s upswing and China’s recovery.

“Notably, the latest Manufacturing Purchasing Managers’ Index (PMI) reading points to a stabilisation in April (49.0; Mar: 48.4), nearing the 50.0 neutral level,” it said.

Meanwhile, the domesticoriented industry is also expected to remain robust, supported by resilient domestic demand.

“This is fueled by increased tourist arrivals and spending, along with stable labour market conditions,” Kenanga Research said, noting that the average unemployment rate is projected to decrease to 3.2 per cent in 2024 (2023: 3.4 per cent).

On the performance of Malaysia’s manufacturing sector in March, the research team noted that the manufacturing index expanded slightly in March (1.3 per cent y-o-y; February: 1.2 per cent), reflecting a continued recovery in the export-oriented industries.

Its domestic-oriented manufacturing industry moderated at 3.1 per cent but remained supported by the manufacture of fabricated metal products except machinery & equipment (11.1 per cent, February: 8.4 per cent), followed by the manufacture of other nonmetallic mineral products (7.6 per cent, February: 5.1 per cent).

As for export-oriented manufacturers, it noted that it rebounded slightly (0.5 per cent, February: -0.2 per cent), led by the manufacture of computers, electronics & optical products (2.0 per cent, February: 0.3 per cent), followed by coke & refined petroleum products (1.9 per cent, February: 2.2 per cent).

The manufacturing sector’s 1Q24 (2.1 per cent; 4Q23: -0.2 per cent) rebounded, charting positive growth after two consecutive quarters of decline.

All in, Kenanga Research said it maintained its 1Q24 GDP growth target at 3.3 per cent (4Q23: 3.0 per cent), slightly lower than the advanced GDP estimate by DOSM at 3.9 per cent.

Its growth forecast remains at 4.5 to 5.0 per cent in 2024, compared with 3.7 per cent in 2023.