Possible Covid-19 resurgence to cause less severe impact to manufacturing sector

KUALA LUMPUR: The possible resurgence of Covid-19 infections continues to pose a downside risk to Malaysia’s trade-oriented manufacturers and export outlook, though the impact would be less severe and short-lived.

Kenanga Research said the higher vaccinated population and aggressive vaccine booster campaign, supported by sizeable fiscal expenditure and various ongoing support would help anchor the related sector.

“Against this backdrop, we retain 2022 gross domestic product (GDP) growth forecast at 5.5 per cent-6.0 per cent. Meanwhile,

GDP growth in 2021 is expected to settle within our projection of 3.5 per cent-4.0 per cent.

“However, we retain our cautious outlook for 2022 as our forecast is still subject to downside risks associated with the development of the Covid-19 new variant, raw materials and labour shortages, and China’s zero-Covid strategy, which could prolong the global supply chain disruptions,’’ it said in a note.

In January 2022, the headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI fell to 50.5 from 52.8 in December 2021, as recovery in the manufacturing conditions was hampered by sustained raw material shortages and rising prices.

However, optimism reached the highest since April 2021, driven by hopes that the pandemic would end along with a broad recovery in demand, while the employment level stabilised in January as firms increased hiring to aid production.

MIDF Research said despite concerns over the Omicron variants, businesses continued to remain optimistic as they believe the impact to be less severe compared to the beginning of the pandemic, hoping demand would eventually pick up in the coming 12 months.

“Moving forward, we anticipate further recovery in the domestic spending activities, coupled with the growing external demand, will foster Malaysia’s manufacturing activities in the coming months.

“In addition, we opine that the production costs to ease going forward, given the improvements in the global supply chain bottlenecks as indicated by the Baltic Dry Index and Global Supply Chain Pressure Index,” it noted.