PETALING JAYA: The positive outlook for Malaysia’s manufacturing sector remains intact despite activity staying below the growth threshold for the first quarter of 2024, based on S&P Global Market Intelligence’s manufacturing purchasing managers’ index (PMI).
This optimism is based on the expected recovery in external demand, particularly in the technology sector.
According to Kenanga Research, the manufacturing sector will gradually pick up pace in the second half of 2024, on the back of an expected technology upcycle.
“We reiterate our outlook that domestic manufacturing conditions, especially in the export-oriented sector, will continue recovering in the coming months, especially in the second half of 2024.
“This will be backed mainly by a technology upcycle and China’s gradual economic recovery, following an expected significant stimulus injection from its government,” Kenanga Research said in a report yesterday.
“Growth is also expected to be bolstered by the continued expansion among regional peers and stronger-than-expected demand from advanced economies,” it added.
Malaysia’s manufacturing PMI fell to a three-month low at 48.4 points in March 2024 from 49.5 points in the preceding month, according to a survey conducted by S&P Global.
The index had persistently stayed below the 50-point threshold since September 2022, signalling a lack of growth.
However, the index showed a more promising performance in the first quarter of 2024 compared to the fourth quarter of 2023, TA Research noted, citing the average PMI improved to 49 points in the first three months of this year from 47.5 from the preceding quarter.
“Moreover, insights from S&P Global suggest a historical relationship between the PMI and official data indicating an upward trend in both gross domestic product and manufacturing production, pointing towards improvement in the first quarter of 2024,” TA Research said in a report.
The research house said upon conducting a more detailed analysis of the ongoing trend, there is a sense of optimism for a potential improvement in the first quarter, even if the index remained below the growth threshold.
“This aligns with our maintained perspective, anticipating a positive momentum in the manufacturing segment’s contribution to the real economy,” the research house said.
TA Research noted this was in contrast to the 0.3% contraction observed in the final quarter of 2023, with a forecast of 2% year-on-year growth for the first quarter of 2024 in real manufacturing.
“Looking ahead, hopes of a stronger improvement in demand were key to optimism regarding the 12-month outlook for output at the end of the first quarter.
“The overall level of confidence eased to the softest since last August, as manufacturers highlighted concerns regarding the timing of a hoped-for recovery in demand,” the research house said.
Similarly, MIDF Research projected that Malaysia’s manufacturing and external trade sectors would stay in recovery mode this year, benefiting from optimism of an upturn in China and other Asian peers.
The research house forecasts growth of 5.2% in Malaysia’s exports in 2024, a rebound from the 8% contraction in 2023.