Analysts still positive on 2024’s manufacturing despite weakness in 2023

KUCHING: Despite the decline in the Industrial Production Index (IPI), analysts remain optimistic about Malaysia’s manufacturing industry in 2024, in tandem with rosier trade prospects and improved investment appetite.

“We expect IPI momentum to pick up in 2024, in tandem with rosier trade prospects and improved investment appetite.

“Investment appetite is improving, as indicated by rising trend of capital and intermediate goods imports coupled with improvement in manufacturing Purchasing Managers’ Index (PMI) for January.

“This might be early signs of bottoming out, suggesting that the manufacturing sector is on the course of recovery,” said the research team at RHB Investment Bank Bhd (RHB Research).

It also pointed out that the S&P Global Malaysia Manufacturing rose to 49.0 points in January 2024 versus 47.9 points in December 2023.

“Most of the sub-components have shown signs of improvement, where new orders have fallen the least since October 2022 while output has dropped the least in nine months.

“At the same time, purchasing activity fell at the softest rate in eight months. Lastly, the sentiment sub-component has improved amid hopes of a rise in demand.

“Moving forward, the manufacturing sectors are expected to be buoyed by global trade recovery,” it said.

Following the recovery in China’s economic activities, it pointed out that the outbound shipments to China grew consecutively in 4Q23.

Meanwhile, the outbound shipments to the US have remained resilient in recent months. For Asean economies, RHB Research’s leading indices suggest that GDP growth momentum will likely accelerate into 1Q24 and be sustained for 1H24 on the back of a rosier global growth backdrop.

In a separate note, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that the moderate IPI growth in 2023 was expected due to the weakness in the trade-oriented industries.

“For 2024, we foresee recovery in the external demand and global manufacturing activities will support Malaysia’s IPI to grow stronger at +3.7 per cent. Continued growth in domestic demand will also support IPI growth this year.

“We are optimistic looking at the stabilisation in manufacturing activities in January 2024 as reported by the recent PMI reports.

“However, we are still concerned that IPI growth this year may be weighed down by downside risks such as sluggish economic recovery in China and possible recession in the US.

“Moreover, companies may relook at production plans if global trade activities are affected by worsening geopolitical tension and disruptions to trade flows,” it said.