Recovery in manufacturing conditions expected to pick up
KUCHING: Recovery in Malaysia’ s manufacturing conditions is expected to gradually pick up pace in the near term, especially in the export-oriented sector, analysts say.
“We maintain our outlook that domestic manufacturing conditions, especially in the export-oriented sector, will continue to recover. This has already been demonstrated in the latest Manufacturing PMI, which showed signs of recovery at the start of 2024.
“The expansion is expected to pick up pace towards 2H24 as we project the upswing in the technology cycle and China’s gradual recovery to benefit Malaysia’s exports going forward,” said the research team at Kenanga Investment Bank Bhd (Kenanga Research) in a report.
It noted that the Manufacturing Purchasing Managers’ Index (PMI) increased in January to 49.0 (December: 47.9), reaching its highest level since September 2022 and signalling a renewed recovery at the start of 2024.
“This improvement is primarily attributed to increased demand. However, the index has remained in contraction (below the neutral threshold of 50.0) since August 2022 due to the prolonged downturn in global trade activity,” it said.
Nevertheless, it pointed out that weak currency and high raw material costs continue to exert cost pressures
“Input cost edged up at a slower pace in eight months. The inflation was mainly associated with exchange rate weakness and higher raw material prices, resulting in a slow but steady increase in output prices,” it added.
However, manufacturers remain confident in future outlook as the degree of optimism increased slightly from December as firms expect demand conditions to improve, it noted.
In the near term, Kenanga Research cautioned that the risk to its outlook remains mainly associated with external factors such as rising geopolitical tensions, which could disrupt the global supply chain and potentially weigh on global trade activity.
“Against this backdrop, we retain a 2024 GDP growth forecast at 4.9 per cent, up from an estimated 3.5 to 4.0 per cent in 2023 (2022: 8.7 per cent),” it added.