The S&P Global Malaysia Manufacturing PMI fell to 47.7 in June from 47.8 in May.
Kenanga Research said despite experiencing a decline for the 10th consecutive month, the average reading of 48.1 in the second quarter (Q2 2023) showed a slight improvement compared to the preceding quarter’s 47.9 — suggesting that manufacturing conditions have improved during this period.
“This aligns with our expectations that economic growth in Q2 2023 remained resilient and is most likely to expand by 6% compared to 5.6% in Q1 2023,” it said in its research note.
“Likewise, we maintain the 2023 gross domestic product (GDP) growth forecast at 4.7%, despite projecting that growth to moderate sharply in H2 2023 (3.6% vs H1 2023: 5.8%) due to the high base and the impact of the global economic slowdown,” it said.
Kenanga Research said the slowdown in the manufacturing industry was primarily attributed to demand conditions that led to low output, in line with the downtrend in external trade. The research house also highlighted the ongoing challenges faced by businesses as cost pressures persist due to high input costs.
“Input costs increased for the third straight month in June due to the increase in the cost of raw materials and partly due to a weaker ringgit that led to higher prices for imported items,” it said.
“However, output prices fell for the second straight month, with the reduction in prices being the sharpest since April 2020,” it added.
Nevertheless, the research house remains optimistic as it expects domestic demand to remain resilient and supporting overall growth, backed by a lower unemployment rate, higher tourist arrivals and further lifted by private and public investment.
PublicInvest’s sobering forecast
In comparison, PublicInvest Research said factors such as inflationary pressures, currently at elevated levels, impact of interest rates, and persisting geopolitical conflicts, predict that the PMI will remain below the 50-point mark.
“Therefore, we maintain the trajectory of Malaysia’s PMI will remain consistent with the trend of the global PMI, and as such, we project that it will continue to languish below the 50-point mark, extending into at least Q3 2023,” it said.
It added that amid sluggish global economic growth, worsened by geopolitical tensions and unpredictable fluctuations in global commodity prices, the country’s manufacturing sector is anticipated to mirror the temporary decline in the semiconductor industry, which has been facing ongoing challenges.
The manufacturing sector is expected to see a slight decrease of just 2% in 2023, following a larger decline of 8.1% in 2022. Currently, there are few indications of a revival in the electrical and electronics (E&E) industry, despite a slower rate of decline this year.
Besides, businesses are facing a grim prospect as they grapple with diminishing orders, both on a domestic and global scale.
“The business sentiment index continues to remain below the crucial 100-point threshold, at 95.4 in Q1 2023 from 85.9 in Q4 2022,” said PublicInvest Research.
“Therefore, we foresee a parallel trajectory between Malaysia’s PMI and the broader global PMI, with the former projected to consistently register below the critical expansion threshold of 50 points, extending into at least Q3 2023,” it added.