INVESTMENT BANKS: MALAYSIA’S MANUFACTURING SECTOR EXPECTED TO SUSTAIN GROWTH

KUALA LUMPUR, July 15 (Bernama) -- The manufacturing sector is expected to sustain growth in the near term despite the moderation in its output in May and the latest Manufacturing Purchasing Managers’ Index (PMI) reading falling below 50.0 in June to 49.9 compared to 50.2 in May.

Kenanga Investment Bank Bhd said this optimism stems from the anticipated recovery in exports, with the technology-related subsector likely benefiting from a technology upcycle. 

“Additionally, the domestic-oriented industry is expected to remain robust, supported by strong domestic demand, driven by the Employees Provident Fund’s (EPF) Account 3 withdrawals, increased tourist arrivals, and stable labour market conditions,” it said in its Economic Viewpoint note today.

However, Kenanga said growth faces downside risks from external factors such as the impact of the Red Sea crisis on global port congestion, renewed US-China trade tensions, and the ongoing Russia-Ukraine war.

“Given the positive domestic industrial output in April and May (average: 4.2 per cent) and strong domestic demand as reflected in distributive trade performance (average: 6.8 per cent) during the same period, we expect gross domestic product (GDP) to expand strongly in the second quarter (2Q) 2024 by 5.1 per cent.

“Consequently, we maintain our 2024 GDP forecast at 4.5 per cent to 5.0 per cent (2023: 3.6 per cent),” it said.

Another investment bank, Public Investment Bank Bhd, anticipates improved industrial sector growth prospects.

It pointed out that given the global semiconductor market has consistently grown y-o-y throughout each month of 2024, with the latest being 19.3 per cent y-o-y in May, this is positive for Malaysia, where electrical and electronics products (E&E) account for over 40 per cent of total exports, seven per cent of global semiconductor trade and 13 per cent of back-end operations. 

However, it said external demand remains a critical risk factor that could significantly impact domestic performance.

Despite prevailing downside risks, it said an anticipated increase in electronics exports, coupled with favourable base effects, is expected to mitigate some negative impacts. 

“We forecast Malaysia’s exports of goods and services to rise by 5.4 per cent year-on-year (y-o-y) in 2024. Additionally, we project global GDP growth to reach 3.0 per cent in 2024,” said Public Investment Bank. 

Meanwhile, Hong Leong Investment Bank Bhd said mirroring the global backdrop, Malaysia’s manufacturing activity is anticipated to remain supportive going forward, benefiting from the global technology recovery and its position in the semiconductor chain.

Following this, the investment bank maintained its GDP growth forecast at 4.8 per cent y-oy for 2024.

Last Friday, the Statistics Department (DoSM) reported Malaysia’s Industrial Production Index (IPI) rose moderately by 2.4 per cent y-o-y in May 2024.

The IPI remained positive in May 2024 (April 2024: 6.1 per cent), with the manufacturing sector growing by 4.6 per cent (April 2024: 4.9 per cent) and a 4.2 per cent expansion in electricity output (April 2024: 7.8 per cent).

However, the mining sector output plummeted by 6.9 per cent, in contrast with the double-digit growth of 10.0 per cent recorded in April 2024. Compared to the previous month, the IPI rebounded to 3.5 per cent from -7.6 per cent.

-- BERNAMA