Economists say Malaysia’s manufacturing sector is still on track for growth, ignoring June’s contraction

KUALA LUMPUR (July 2): Economists said Malaysia’s manufacturing sector remained on track for growth and shrugged off a slight decline in the Purchasing Managers’ Index (PMI) in June.

The average reading for the second quarter of this year was the highest since the third quarter of 2022, indicating a potential improvement in economic growth, TA Securities said. The recent expansion, as indicated by official industrial production data, lasted beyond April, the research house noted.

“Looking ahead, new orders are expected to grow steadily in the coming year, underpinning optimism about the outlook for industrial production,” TA Securities said.

S&P Global, which produces the survey, said Malaysia’s seasonally adjusted manufacturing PMI fell to 49.9 in June from 50.2 in May. A reading above 50 indicates expansion in the manufacturing sector, while below 50 indicates a contraction in the sector.

PMIs in Asia continue to outperform other regions, with ASEAN PMIs continuing to point to expansion in June for a sixth straight month. Manufacturing activity in export-dependent countries such as China, South Korea, Japan, Taiwan, Vietnam and Thailand also rose in June.

PMIs from other economies continued to point to “better regional terms of trade” despite a decline in Malaysia, MIDF Amanah Investment Bank said. “We remain optimistic about Malaysia’s foreign trade performance” in the second half of the year thanks to improved exports, including key electronics products, the house said.

The latest official data from June 20 showed Malaysian exports rose 7.3% in May from a year earlier, well above forecasts, driven by increased shipments of electronics and palm oil amid higher shipments to the United States.

Shipments of electrical and electronic products, which account for more than a third of gross exports, rose 7.6%, while palm oil shipments rose 25.7%. Shipments of petroleum products abroad fell 18.6% and shipments of liquefied natural gas fell 21.2%.

“We expect significant expansion in the manufacturing sector, supported by resilient domestic demand coupled with strong foreign direct investment, largely driven by Malaysia’s favourable investment policy towards foreign investors,” Kenanga Investment Bank said.

In addition, the recovery in the global semiconductor industry due to the technology development cycle, as well as the economic recovery in China, will also benefit Malaysia, the research institute added.

Global semiconductor industry sales rose 15.8% year-over-year and 1.1% month-over-month in April, according to the latest available data from the Semiconductor Industry Association, released June 6.

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