Analysts have foreseen Malaysia’s manufacturing sector to stay weak ahead due to the slowing global economy.
Kenanga Research said in a note that the weaker purchasing managers index (PMI) reading in July was in line with its expectation that the manufacturing condition in Malaysia will remain weak in the third quarter.
According to the research house, this is expected to weigh on Malaysia’s third-quarter gross domestic product (GDP) growth outlook, which it forecast to moderate sharply to 3.4 percent from an estimated 6 percent in the second quarter.
Nevertheless, Kenanga maintained Malaysia’s full-year GDP growth forecast at 4.7 percent as it expects domestic demand to remain resilient and support overall growth.
This is mainly due to the continued recovery in the tourism-related subsector largely backed by the resumption of international tourism and the steady labor market condition, as reflected by the lower unemployment rate as well as a decent increase in household income, it said.
PublicInvest Research also said in a note that the latest reading pointed to a sustained slowdown in business conditions that were broadly in line with that seen on average over the second quarter.
“Given the multifaceted and volatile nature of the manufacturing industry, we adopt a circumspect and cautious stance with respect to its immediate future,” said the research house.
It maintained that the trajectory of Malaysia’s PMI will remain consistent with the trend of the global PMI, and as such, it projected that it will continue to languish below the 50-point mark for the rest of the year.
“Our projections indicate that the manufacturing sector as a whole will experience a further moderation of only 2 percent in 2023, as compared to 8.1 percent in 2022,” it said.
According to PublicInvest, the major advanced economies’ deceleration in gross fixed capital formation and industrial production has exerted a drag on international trade and manufacturing activities in emerging markets.
It noted the convergence of weakening indicators for demand and production in the manufacturing sector portends additional frailty.
MIDF Research also said in a note that the pessimism among manufacturers in Malaysia and regionally reflects persistent weakness in regional and global demand.
“Henceforth, we maintain our forecast that Malaysia’s GDP growth will moderate to 4.2 percent in 2023 from 8.7 percent in 2022,” said the research house.
According to the research house, the growth was weighed down by uninspiring external trade performance as real exports of goods are predicted to contract by 2.8 percent, as compared to a growth of 11.1 percent in 2022.
According to TA Securities, for the initial seven months of 2023, the average PMI stood at a modest 48, exhibiting little variance from the 48.2 points observed in the preceding quarter.
Despite the prevailing challenges, it said Malaysian manufacturers remained cautiously optimistic that demand conditions would eventually normalize within the forthcoming 12 months.
“However, it is pertinent to observe that the sentiment was relatively subdued, manifesting as the weakest level of optimism observed within the current sequence,” it said.