PETALING JAYA: The Malaysian manufacturing sector could hit a bump in its recovery path despite the positive economic outlook projected for 2022.
The sector forms the biggest industrial production index (IPI) component and constitutes 24.3% of last year’s gross domestic product (GDP).
Based on the March manufacturing purchasing managers index (PMI) figures, Maybank Investment Bank (Maybank IB) Research said there could be a risk of further slowing in the manufacturing sector, amid the Russia-Ukraine war and the prolonged global manufacturing supply chain disruptions following the latest rounds of Covid-19 lockdowns in China.
In March, the domestic manufacturing sector suffered a contraction as the PMI for Malaysia fell to 49.6 from 50.9 in February. A PMI reading of above 50 represents an expansion when compared with the previous month, while a reading under 50 represents a contraction.
“Critical to the outlook of firmer growth this year is the favourable impact of the sustained opening of the economy (which culminated in the reopening of international borders) versus the ins and outs of lockdowns of 2020 to 2021.
“This is especially on the services sector (57% of 2021 GDP) and private consumption (58.8% of 2021 GDP), plus the continued supportive monetary and fiscal policy, as well as the impact of targeted measures such as the fourth round of Employees Provident Fund pre-retirement withdrawal scheme,” Maybank IB said in a report yesterday.
In February 2022, IPI and crude palm oil output eased to 3.9% year-on-year (y-o-y) (January 2022: 4.3% y-o-y) and 2.6% y-o-y (January 2022: 11.3% y-o-y) while the distributive trade index picked up to 3.8% y-o-y (January 2022: 3.4% y-o-y; revised from 3.6% y-o-y previously).
Inputting these indicators into the monthly GDP tracker, Maybank IB estimated the economy grew 3% y-o-y in February 2022 (January 2022: up 3.3% y-o-y) and averaged 3.2% in the two months of 2022.
Meanwhile, TA Research said manufacturing activities would continue to pick up in 2022 (IPI: 2022 estimate: 4.3%; 2021: 7.2%), driven by the recovery in global demand, continued support domestically, and the positive impact from the vaccine rollouts.
However, the research house raised caution of the ongoing global uncertainties following the geopolitical instability and lockdown of cities across China.
“The latest leading indicator suggests that manufacturing activity is expected to slow in March as the PMI has ended five months of continuous expansion due to rising Covid-19 cases, higher input prices, and supply shortages. Despite Malaysian manufacturers displaying optimism regarding output outlook, the overall sentiment has waned to the softest pace since last October,” it added.
Meanwhile, PublicInvest Research said the IPI is expected to remain steady in the near term, thanks to the full opening of the economy and the National Recovery Plan (NRP).
This would be supported by the favourable external conditions amid the reopening of economies around the world – a boon for the manufacturing components, it said.
It said the IPI would also be driven by a lag impact of expansionary global fiscal strategies in 2021 and accommodative interest rate environment.
“The Organisation of the Petroleum Exporting Countries plus’ higher supply direction will also bode well for the mining component, in addition to a fair prospect for the pact to ramp up output due to the Russia-Ukraine conflict.
“This will also be topped by the commissioning of new oil field facilities in March,” said the research house.
“Electricity output is also set to rebound thanks to full opening of the economy post-NRP and our transition into the endemic stage in April. The steady turnaround in the headline index forms the basis of our sanguine IPI outlook although we remain cautious given the risks of Covid-19 cases in the workplaces.
“The prolonged supply chain disruption and shortages in raw materials and containers are also a worry – a condition that may improve only gradually,” it added.