Global manufacturing activity recovery to continue gradually into 2024 – S&P Global

KUALA LUMPUR: The global manufacturing activity recovery had seen a gradual improvement in late 2023 and is expected to continue into 2024 although it remained in contractionary territory after two years of downturn.

S&P Global Market Intelligence senior associate Benjamin Ng said that with global growth prospects picking up, the economic conditions are likely to improve and this could be observed from the global Purchasing Managers Index (PMI) data, improvement in the electronic industry, as well as tourism segment.

“We saw that the United States (US) economy is stronger than expected although the Western Europe sector continued to underperform. Growth in Asia Pacific (APAC) was uneven with India and Indonesia leading the region as the fastest growing while China was still struggling with multiple headwinds,” he said during a webinar organised by the Malaysia External Trade Development Corporation today.

He said global PMI data showed that global gradual improvement of economic positions, with indications of further improvement with new orders and future output indications rising to its highest level since mid-2023.

The market condition also sees improvement in demand prospects as reflected in the pickup in the employment and services segments despite the manufacturing segment remaining in a relatively challenging environment, he noted.

APAC is expected to drive world growth in 2024 benefitting from gradual recovery in China, and resilient domestic demand in other Asia Pacific emerging market with real Gross Domestic Product (GDP) for APAC expected to increase to 4.5 per cent in 2023 and continue to grow at a similar pace for 2024 and 2025, he noted.

APAC’s contribution to global growth is about 55 pct of the world’s real GDP whereby half of the growth came from China, followed by India and ASEAN, especially Indonesia, he said.

“Gradual recovery in electronic exports combined with a continued rebound in international tourism in 2024 will support the export sector of many APAC economies,” he said.

As for Malaysia, he said its economic momentum that was observed at the end of 2023 will continue in 2024 with real GDP growth projected to accelerate to 4.6 per cent driven by the recovery in merchandise exports as well as tourism and the continued strength in private consumption and investment.

“Recovery is under way after an extended period of downturn supply chain activity has shown signs of improvement. Although the rate of growth in trade resulting from the recovery is expected to be moderate, it is expected to increase through the remainder of 2024,” he added.

He also pointed out that manufacturing new orders which had declined in 2022, observing from PMI index for G4 countries which include Brazil, Germany, India and Japan had also steadily increased since December 2023.

This was accompanied by steady improvement in export orders and quantity of purchases while the electronic segment growth in 2023 saw an improvement in early 2024, and is expected to persist throughout 2024, he said.

However, he noted the textile and apparel manufacturing segment is expected to slip by 1.6 per cent and will not recover on a quarterly basis despite the ongoing period of restocking.

Nonetheless, he shared that evidence of recovery in the electronic supply chain is mixed with the artificial intelligence (AI) boom driving the industry revenues up by 33 per cent in the first quarter (1Q) of 2024.

On another note, he highlighted that there is an upside risk to supply chain activities which may come later in 2024 if United States importers choose to anticipate tariff increases of imports from China.

“We anticipate prior to the increase there would be a pre-tariff surge which could add 20 to 30 per cent of imports from China in 4Q 2024.

“Meanwhile there had been an ongoing process of reshoring from US away from China for supplies and this strategic rivalry between the US and China had played out actively in the semiconductor industry with a variety of restrictions and retaliations across trade and industry since the launch of Made In China 2025,” he noted.

Amid the geopolitical uncertainties, he said there are both unintended consequences in limitations as well as market potentials.

China remained a huge market for semi-conductor suppliers, equipment providers and raw materials suppliers and accounted for almost 30 per cent of revenues of the 10 largest chips companies while the US accounted for 25 per cent, he noted.

Given that this may likely split the market, exporters may need to take into consideration various strategies to mitigate the market risks, he added. – BK