KUALA LUMPUR: The recovery in Malaysia’s exports played a major role in boosting manufacturing activities, economists said yesterday after latest data showed a positive turnaround for the manufacturing sector.

Stressing the export recovery appears to be more sustainable than expected, the economists said they are now more optimistic about the country’s economic outlook.

The Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) breached the 50-point level for the first time since March 2015, as it rose to 50.7 in April from 49.5 in March. A reading above 50 indicates economic expansion, while one below 50 points indicates a contraction.

RHB Research Institute Sdn Bhd chief Asean economist Peck Boon Soon said the recovery in exports contributed significantly towards enhancing manufacturing activities, adding that a similar trend could be seen in other Asean countries as well. “It (recovery in exports) was not just in Malaysia alone. It’s across the region. The recovery is rather strong. Most of the countries recorded double-digit growth in exports,” Peck told The Edge Financial Daily in a telephone interview.

“At the moment, things are looking to be more sustainable than expected. Global growth is picking up with Europe and the US continuing to show growth, indicating there is real demand growth.”

RHB had revised upwards the 2017 gross domestic product growth projection for Malaysia from 4% to 4.5% in early April.

Peck said that while things have improved, downside risks from external factors remain, especially with regard to US President Donald Trump’s policies. “Another risk would be coming from election results in Europe. At the moment, the risk of Europe’s disintegration has reduced with Emmanuel Macron being the front runner in the French presidential election. Of course, if there is a surprise in the election results, it could have some negative impact.”

Affin Hwang Investment Bank Bhd chief economist Alan Tan, who has expected the Nikkei Malaysia Manufacturing PMI to rise above the 50-point level in the second quarter of this year, agrees with Peck on the recovery in exports. “We are likely to see strong exports growth in the first half of 2017, driven by sustained recovery in China, and it is possible [the growth could] continue into the second half of the year,” Tan said.

Tan had previously stated that rises in the PMI in the Asean region, together with China’s PMI, pointed towards further improvements, and that the higher exports which lowered the manufacturers’ inventory level, have led to the need to increase production to replenish inventories.

“In the fourth quarter of 2016 and first quarter of 2017, manufacturers were rebuilding their inventories in anticipation of the demand that will likely pick up towards the second quarter, possibly going into the second half,” Tan said.

He said China’s economic recovery has given rise to greater demand for Asean intermediate goods, reflecting the strong export numbers in the region. Tan said optimism on global economic recovery is growing as reflected by the positive revision by the World Trade Organization for global trade to expand at 2.4% in 2017, higher than the 1.3% recorded in 2016.

However, as with Peck, Tan cautions about downside risks that could come from factors such as Trump’s policies that could hurt trading activities and trigger a sharp slowdown in the economy.

UOB Malaysia Bhd economist Julia Goh, who had also predicted that Malaysia’s PMI would breach the 50-point level in April, shares that the index for Malaysia has lagged the region and is now playing catch-up.

While Goh remains positive that exports and manufacturing activities will continue to expand, she predicts the export growth will taper off in the second half of the year. Goh also tells The Edge Financial Daily that the unemployment rate has not really come off despite improved business sentiments and export numbers, which could add to the pressure facing domestic demand.

Goh’s comments were reflected in the employment index in the Nikkei Malaysia PMI report released yesterday by IHS Markit. “Staffing levels among Malaysian manufacturers were little changed during the latest survey period,” said the report. “This was highlighted by the seasonally adjusted Employment Index which recorded only slightly below 50.0 no-change mark. Where a fall in workforce numbers was signalled, this was reported to be the result of difficulties in securing migrant labour.”

IHS Markit senior economist Paul Smith noted that April’s survey marked a positive turnaround for the Malaysian manufacturing economy, with output and new orders rising concurrently for the first time in over two years. “With exports growth also possibly supported by relative currency weakness, the corollary was a further sharp rise in input costs, with firms seeking to pass these on wherever possible to clients,” he said.

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