KUALA LUMPUR: Following improvements in November, Malaysia’s manufacturing activities are expected to further strengthen in the near term, buoyed by robust external markets and a rebound in domestic demand.
Local manufacturers had noted improved operating conditions for the second successive month in November, according to IHS Markit.
The headline IHS Markit Malaysia manufacturing Purchasing Managers’ Index (PMI) – a composite single-figure indicator of manufacturing performance – edged up from 52.2 in October to 52.3 in November.
Manufacturers also noted sustained optimism about the year-ahead outlook, with hopes that the end of the pandemic would boost demand further, pushing confidence to the highest since April.
The employment level has also expanded, the first time since March 2021, as additional capacity was required to fulfil orders.
In its review, Kenanga Research pointed out that manufacturing conditions improved in line with the relaxation of Covid-19 restrictions and the gradual economic reopening under the National Recovery Plan amid rapid progress of vaccination rates.
“Output and new orders expanded further in November. New orders rose at the fastest pace since April 2021, underpinned by solid demand amid higher consumer confidence in domestic and international markets.
“Nonetheless, new export orders moderated, but the pace of reduction was mild, supported by higher demand from the Asia-Pacific region,” it said.
Other major economies that trade with Malaysia have also shown stronger manufacturing activities. China returned to expansion mode with a surprise PMI reading of 50.1 in November compared to 49.2 in October. The US, meanwhile, improved to 59.1 from 58.4.
While the domestic manufacturing sector is expected to recover in the final quarter of this year, Kenanga cautioned that optimism going into 2022 is tempered with the discovery of the new Covid-19 Omicron variant.
Notably, a potential surge in the number of infections due to the spread of Omicron and the reimposition of pandemic-related restrictions will hinder the pace of global economic recovery. However, the research house took note that the impact this round may not be as severe as before, given the current higher vaccinated population and supportive fiscal measures by the government.
“Against this backdrop, we retain gross domestic product growth projection at 3.5%-4.0% in 2021 and to expand further to 5.5%-6.0% in 2022. However, our forecast is still subjected to downside risks,” it said.
AmBank Research similarly forecasts growth for 2021 to hover around 3.5% with the upside of 4.0% in the best case scenario.
The research house said it is on the lookout for factors that would pose a significant threat to the recovery progress, which if materialised, could pull the economy back to recession.
“The newly-discovered Omicron variant has become a significant risk, coupled with pressure on productions due to the ongoing supply-chain issue.”MIDF Research highlighted that other risks that may hurt the domestic production outlook include prolonged supply bottlenecks, soaring commodity prices, and freight constraints.