Domestic demand and tourist arrivals to support economic growth

PETALING JAYA: Manufacturing activities will likely remain soft for the remainder of this year amid weak demand from the domestic and international markets.

The country’s manufacturing purchasing managers’ index (PMI) is likely to continue below the 50-point mark, which separates expansion from contraction, for the November-to-December period.

The S&P Global PMI for Malaysia stood at 46.8 points last month, unchanged from September – marking the 15th consecutive month of contraction in the manufacturing sector.

Kenanga Research attributed the manufacturing slowdown to weaker demand from both the domestic and international markets.

“The latest reading reflects persistent weakness in the manufacturing conditions amid weaker demand from domestic and international markets, as evidenced by weak export. The performance was also partly due to the higher base effect recorded last year,” the brokerage wrote in its report.

Despite the weak start in manufacturing conditions in the final quarter of the year, Kenanga Research maintained its 2023 gross domestic product (GDP) growth forecast at 3.5% to 4%.

“Growth is expected to be supported by a resilient domestic demand, given the sustained performance in retail sales on the back of an increase in tourist arrivals and steady labour market conditions,” it said.

In 2022, Malaysia’s GDP grew 8.7%.

Against the backdrop, Malaysia’s manufacturing sector appeared poised to navigate the prevailing headwinds, albeit with cautious optimism, Public Investment Bank (PublicInvest) Research said.

“It is anticipated that this sector will echo the current cyclical downturn observed in the semiconductor industry, a domain marked by sustained challenges to growth,” it noted.

PublicInvest said Malaysia’s PMI would likely mirror global trends for the remainder of the year, with the former expected to remain below the 50-point threshold.

“Therefore, this period calls for astute policy responses and strategic manoeuvres to ensure the manufacturing sector’s long-term resilience and competitiveness on the global stage,” it argued.

TA Research said the downward trend in PMI at the start of the fourth quarter of 2023 had raised significant concerns, as it likely mirrored the performance of crucial economic indicators, including industrial output, exports, and, ultimately, the GDP.