PublicInvest Research

May 2023 Malaysia Manufacturing PMI - Murky Global Horizons

Publish date: Fri, 02 Jun 2023, 09:40 AM
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Several ASEAN countries, including Thailand (58.2) and the Philippines (52.2), have exhibited sustained PMI readings above the critical threshold of 50 points.In contrast, the PMI of Malaysia has remained below the 50-point benchmark, with the latest data from May indicating a reading of 47.8 (48.8 in April).

Given the multifaceted and volatile nature of the manufacturing industry, we adopt a circumspect and cautious stance with respect to its immediate future.Our apprehension is founded on a confluence of factors that predispose the industry to significant downside risks. These factors include inflationary pressures, which are currently at elevated levels, the impact of ongoing interest rates, and persisting geopolitical conflicts. Therefore, we maintain that the trajectory of Malaysia's PMI will remain consistent with the trend of the global PMI, and as such, we project that it will continue to languish below the 50-point mark, extending into at least 3Q23. However, our projection suggests that the manufacturing industry as a whole will still experience a commendable 4.4% expansion in 2023.


The manufacturing sector across several Asian countries exhibited a varied performance, with China's manufacturing PMI experiencing an improvement above the 50-point threshold level at 50.9 in May (49.5 in April). The recent improvement in factory activity during the month of May has presented conflicting signals, further clouding the outlook for China's economy. This situation exacerbates the challenges faced by policymakers in their efforts to stimulate an economy that continues to struggle in regaining momentum following the impact of the Covid-19 pandemic, especially in the face of subdued global demand. The macroeconomic data from China currently presents a mixed view, with the property market experiencing a slowdown in home sales, posing a significant risk to the overall economy. Moreover, both business and consumer confidence have yet to fully recover to pre-pandemic levels. As the economic landscape remains uncertain in the short term, we maintain a cautious stance and anticipate a weakening of China's exports in the forthcoming months, which would further exert downward pressure on manufacturers. Furthermore, China's faltering recovery has also had adverse effects on factories across Asia.

Taiwan’s manufacturing PMI dropped to 44.3 in May from 47.1 in April, while South Korea’s factory gauge ticked up marginally to 48.4 in May although remaining firmly in contraction territory. In a noteworthy departure from theprevailing trend, Japan stood out as an uncommon anomaly, with its factory activity exhibiting a notable reversal in its trajectory, marking the first instance of such a turnaround since October 2022, with the Japanese manufacturing PMI rising to 50.6 in May from 49.5 in April. The observed development can be attributed to notable expansions in both output and new orders, thus bolstering the overall performance and subsequently reinforcing a positive outlook for the coming year. Japan has thus far exhibited resilience in mitigating the adverse effects of a deteriorating global economic landscape, primarily owing to a resurgence in activity within the services sector. However, the emergence of indications hinting at deceleration in growth across major economies casts a shadow of uncertainty over the prospects of Japan's export-dependent economy

Some of the ASEAN countries continued to remain above the 50-point threshold mark, with Thailand leading the pack. The manufacturing sector in Thailand continued to expand in May, albeit at a slower rate, the latest survey from S&P Global revealing a manufacturing PMI score of 58.2 (60.4 in April). Higher demand ensured that production growth remained strong in May and led to further backlog accumulation. Consequently, firms increased their workforce capacity. Notably, S&P Global affirmed that business confidence fell sharply in May amid lingering concerns over the economic and political outlook. The Philippines' PMI of 52.2 indicated a continued improvement in the manufacturing sector's health in the middle of 2Q23, with both new orders and production expanding at quicker rates. Moreover, employment picked up at a modest pace following three consecutive months of decline.


The Malaysian manufacturing sector exhibited a further deceleration in May, with the latest data portraying further challenges for firms, with business conditions moderating to the greatest extent since January. The extent of moderation observed in both output and new orders surpassed that witnessed in the preceding month of April, coinciding with firms' decision to curtail employment, marking the first instance of such a contraction in the labour market within a span of five months. Moreover, purchasing activity displayed a notable softening, a trend that contributed to downstream effects on supply chains, accompanied by relatively subdued inflationary pressures. Remarkably, supplier performance experienced its most substantial improvement in slightly over a decade. The country's PMI posted 47.8 in May, down from 48.8 in April. S&P Global guided that analysis of the PMI data in relation to official GDP figures indicates a resilient trend in 2Q23 GDP growth, poised to remain stable at approximately 5.5% YoY, akin to the performance recorded in the preceding quarter. Moreover, the latest data corroborates an impending stagnation scenario in official manufacturing figures over the same period. Firms express apprehensions regarding the endurance of demand weakness in the forthcoming months, resulting in a consecutive fourth-month decline in sentiment, reaching its lowest level since June 2022.


Against the backdrop of the tepid growth in the global economy, exacerbated by the continuing geopolitical tensions and volatility in the global commodity prices, manufacturing output of the country is expected to follow the short-term cyclical weakening in the semiconductor industry, which has been experiencing sustained adverse growth. Our projections indicate that the manufacturing sector as a whole will experience a moderated expansion of 4.4% in 2023 (8.1% in 2022). The E&E cluster, which accounts for a significant proportion of the country's total exports, is expected to exhibit a growth rate below its long-term average (2016-2019) of 6.2%, in contrast to the impressive growth rate of 30.2% recorded in 2022. Furthermore, the outlook for businesses is bleak, as companies contend with dwindling orders, both domestically and internationally. The business sentiment index continues to remain below the crucial 100-point threshold, at 95.4 in 1Q23 from 85.9 in 4Q22. Therefore, we foresee a parallel trajectory between Malaysia's purchasing managers' index (PMI) and the broader global PMI, with the former projected to consistently register below the critical expansion threshold of 50 points, extending into at least 3Q23.

Source: PublicInvest Research - 2 Jun 2023

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