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Manufacturing on comeback trail

Manufacturing on comeback trail

03 Nov 2021

Sector gaining momentum as economic restrictions ease

Malaysia’s manufacturing activities are expected to strengthen in the final quarter of this year and into next year, according to several brokerages.

Their optimistic outlook is based on the anticipated recovery in domestic demand and improving external trade as more economies open up from Covid-19 lockdowns.

IHS Markit data on Monday showed Malaysia’s manufacturing Purchasing Managers’ Index (PMI) in October had returned to expansion territory, that is above 50 points, after four consecutive months of contraction.

The PMI, an indicator of the manufacturing performance, soared to 52.2 points last month from 48.1 points in September.

The improvement in the country’s manufacturing conditions was mainly due to the relaxation of Covid-19 restrictions as more states moved to phases three and four of the National Recovery Plan, with more manufacturing subsectors resuming operations amid the progress of vaccination rates.

Kenanga Research noted Malaysia’s manufacturing conditions could continue to see recovery, thanks to the resumption of economic activities in the country.

“The domestic manufacturing sector is expected to gradually recover in the final quarter of this year and going into 2022,” the brokerage said.

“This is attributable to the relaxation of the Covid-19 movement restrictions on the back of vaccination progress, unleashed pent-up demand, continued support from the fiscal and financial measures, and strong external demand from major economies,” it explained in its report yesterday.

Against this backdrop, Kenanga Research maintained its value-added manufacturing growth forecast at 4.5% in the fourth quarter of 2021 against the expected 2.1% in the third quarter.

This would bring the overall manufacturing growth to 9.1% in 2021, compared with a contraction of 2.6% in 2020.

Likewise, Kenanga Research forecast Malaysia’s gross domestic product (GDP) to grow 3.5%-4.0% in 2021 before accelerating to 5.5%-6.0% in 2022.

MIDF Research noted firms remained optimistic, underpinned by hopes that that the Covid-19 pandemic would continue to dissipate and demand would recover.

“We anticipate manufacturing activities in Malaysia to strengthen, further bolstered by the recovery in domestic demand and the robust trade performance,” the research house said.

However, MIDF Research said several factors could affect the sector’s growth. These included weaker-than-expected external demand due potentially to a resurgence of Covid-19 infections and tighter containment measures; the rise in production costs; high commodity prices; and other supply chain challenges.

“The upward pressure on producer prices continued to rise driven by the supply and logistic constraints, which led to the input price rising at the fastest pace since May 2021. As a result, output prices increased passing more costs burden to the consumers,” MIDF Research said.

Meanwhile, Ambank Research said the October PMI showed that the manufacturing sector is now back on track towards recovery as the effects of severe pandemic restrictions subside.

“This also signals the positive development in Malaysia’s overall economic conditions,” it said.

Ambank Research noted although manufacturers have pointed out that input materials and container shortages have pushed the cost price factor upwards and constrained recovery progress, this in turn, has caused them to raise their output price.

“Moving forward, we can expect the sector to continue improving driven by healthy global demand, the reopening of economies, strong commodity prices and steadily outperforming electrical and electronic manufacturers amid the ongoing supply chain disruption and higher input prices,” it explained.

Ambank Research maintained its projection that Malaysia’s GDP would grow in the range of 3%-3.5% this year.

Despite the upbeat PMI number, the employment level in October fell marginally, albeit at a slower pace, due to persisting labour shortages.

Consequently, backlogs of work expanded following reports of sustained raw material and labour shortages.

Regionally, data from IHS Markit also showed manufacturing activities in Asean had rebounded since October.

The headline PMI rose to 53.6 in October from 50.0 in September, signalling the first improvement in Asean manufacturing conditions since May, and one that was the quickest since data collection began in July 2012.

Indonesia topped the rankings last month, with the headline PMI of 57.2 points – the highest on record and indicative of a rapid improvement in the health of the sector, amid looser lockdown measures.

This was followed by Singapore, where the headline index of 54.5 points remained firmly in expansion territory for the second month in a row and signalled a sharp uplift in manufacturing conditions.

This was followed by Malaysia, Vietnam (52.1), the Philippines (51), and Thailand (50.9).

Source: The Star