Manufacturing sector outlook remains challenging

FMM-MIER survey reveals cautiousness continues to prevail for the first half of 2021

PETALING JAYA: The FMMMIER Business Conditions Survey, a collaboration between the Federation of Malaysian Manufacturers (FMM) and the Malaysian Institute of

Economic Research

(MIER), revealed that cautiousness among manufacturers continues to prevail for the first half of 2021 (H1’21).

FMM president Tan Sri Soh Thian Lai said with constraints on mobility and demand, respondents are cautious on their business projections for H1’21. While most of these indicators have improved from the previous period, they have persistently remained below the 100-point optimism threshold.

The expected index for business activity rose to 87, and with its reading below the optimism threshold, this implies that respondents are cautiously hopeful of a pick-up in their businesses soon. Twenty-three per cent replied positively, while 41% do not foresee any change in the coming months.

Except for cost of production and employment, which are expected to trend up, the outlook for local and export sales, production, capacity utilisation and capital investment is cool.

Registering below the optimism threshold, both the expected indexes for local sales and export sales stood at 74 and 88, respectively, again reflecting cautiousness.

The indexes for expected production volume and capacity utilisation are also below the optimism threshold. At 91 and 92, respectively, these are additional signs that respondents are cautiously projecting a pick-up in these aspects in H1’21. Some 26% of the respondents are planning to increase their production volume soon, while 25% are considering increasing their capacities soon.

The expected cost of production index rose from the prior survey to 155 currently, an inference that production is likely to cost more in the coming months. This is projected by 62% of the respondents, up from 45% previously.

Capital expenditure (capex) and employment are expected to shift higher in H1’21, as shown by the expected indexes which increased from the preceding survey to 98 and 102 in the current survey, respectively. About 24% of the respondents are planning to increase their capex soon and 19% have recruitment plans for H1’21.

Productivity-related strategies that respondents will undertake in H1’21 will be mainly in training and upskilling, and implementation of lean manufacturing, as disclosed by 50% and 48% of the respondents, respectively. 28% will adopt flexihours and work from home, while another 28% will increase their technical staff.

Automation is the most popular technology-related strategy that 55% of the respondents will embark on in H1’21, followed by digitalisation and Industry 4.0, with 37% and 28% responses, respectively.

Market expansion is also popular, with 54% votes. Introduction of new products will be implemented by 43%, while 30% will diversify their business activity and 26% will deploy R&D and innovation.

After a slow H1’20 due to the onslaught of the Covid-19 pandemic, activity in Malaysian manufacturing picked up slightly and cautiously in H2’20. Most indicators registered readings below the threshold level of optimism, an indication that overall business conditions in H2’20 stayed subdued.

The survey, which drew 652 respondents, was conducted from Dec 23, 2020 to Jan 31, 2021 and tracked business confidence via the FMMMIER Business Conditions Index covering the actual performance in H2’20 and outlook for H1’21.