• Manufacturing sales value moderated to 8.0% YoY

• Steady growth in the sales value of both export and domestic oriented

• Manufacturing sector employment rose by 2.8% YoY

• Productivity jumped 5.1% YoY in March

• Weak manufacturing outlook could affect manufacturing sales

The sales value of the Manufacturing sector moderated to 8.0% YoY, amounting  to RM156.2bn in March 2023. The expansion in the sales value was mainly  supported by the double-digit growth in transport equipment & other  manufactures (Mar: 14.6%; Feb: 14.3%) and electrical & electronics products (Mar:  12.7%; Feb: 10.0%) sub-sectors.

On a month-on-month comparison, the sales value returned to record positive  growth of 7.6% after registering a continuous decline since December 2022. However, seasonally adjusted sales value shrank 0.5%.

The sales value of export-oriented industries which contributed more than two-thirds or  71.7% of total sales, rose 7.3% YoY in March after registering 9.9% YoY growth in February.  The increment was mainly attributable to the strong growth registered in manufacture of  computer, electronics and optical products (14.1%) and manufacture of coke and refined  petroleum products (12.7%). Similarly, the domestic-oriented industries posted steady  growth of 9.9% YoY (Feb’23: 11.3% YoY) underpinned by the manufacture of motor vehicles,  trailers and semi-trailers (18.6%) and manufacture of food processing products (9.9%). As  compared to February 2023, both export and domestic-oriented industries improved to  8.6% MoM and 5.1% MoM respectively.

Sustained employment growth in manufacturing sector. There were 2.35 million persons  engaged in the manufacturing sector in March 2023 which increased by 2.8% YoY as against  2.29 million persons registered a year ago. The increase was mainly supported by the food,  beverages & tobacco products (5.3%); electrical & electronic products (4.2%); and wood,  furniture, paper products & printing (2.3%) sub-sectors. The number of persons engaged in  these three sub-sectors encompasses more than half of the total in the manufacturing sector. As compared to the preceding month, the number of employees grew slightly by 0.1%.

In line with the increase in the number of employees, the salaries & wages paid in the  manufacturing sector went up by 4.2% YoY or RM327.1mn which amounted to RM8.17bn  in March 2023. In comparison with the previous month, the salaries & wages increased  marginally by 0.1% or RM6.0mn from RM8.16 billion. In addition, the average monthly  salaries & wages per employee posted an increase of 1.3% YoY with a value of RM3,475.  Nonetheless, average salaries & wages paid per employee decreased marginally by 0.02% as  compared to the preceding month (Feb’23: RM3,474).

Meanwhile the sales value per employee or productivity rose by 5.1% YoY to RM66,430 as  compared to RM63,222 in the same month of the previous year. Whereas, the average sales  value per employee rose 7.5% as compared to February 2023.

Manufacturing sector sales value remained strong. In the first quarter 2023, the sales value  of the manufacturing sector grew 8.2% YoY to RM449.4bn. The increase was driven by the  electrical & electronics products (10.6%); petroleum, chemical, rubber & plastics products  (7.7%); and food, beverages & tobacco products (6.0%) sub-sectors. The number of  employees and salaries & wages rose 2.8% YoY and 4.3% YoY respectively in 1Q23.  Furthermore, sales value per employee registered a growth of 5.3% YoY, amounting to  RM191,141.

Outlook

Malaysia’s manufacturing sector demonstrated a continued moderation at the conclusion of  1Q23. We expect slower production going forward as guided by recent information flow.  Malaysia Manufacturing PMI stood at 48.8 in April 2023, unchanged from the previous  period and indicated the 8th straight contraction and the softest fall since September 2022,  with the latest data signalling mixed trends at the start of the second quarter of the year.  Meanwhile the export-oriented segment, which accounted around two thirds of the  manufacturing sector has also been trending lower over the same period. The manufacturing sector output for the export-oriented industries grew by 3.6% YoY in March (Feb: 3.7%) whilst sales value of export-oriented industries rose 7.3% YoY in March after registering 9.9% YoY growth in February. Meanwhile, Malaysia recorded -1.4% YoY decline in exports in March (Feb: +9.8% YoY), its first month of contraction since August 2020. Overseas sales of manufactured goods fell by 0.4% YoY (Feb: +9.5% YoY), mainly weighed down by sluggish demand for electrical & electronics (Mar: -4.4%, Feb: +11.7%). Lingering global recession risks amid a tighter monetary policy environment will continue to suppress global demand this year. Expectations for a tightening of credit conditions following the recent global banking sector turmoil will further amplify the global recession risk and dent business confidence in the near term.

Downside risks remain given the uncertain global economic outlook and the potential for  exports to weaken. Pessimism in global economy is largely due to series of interest rate hikes  which is among the steepest in history and at the same time, inflations proven to be stickier  than initially expected. Despite slightly sustained manufacturing and sales performance in  March, we still expect growth to remain moderate in the coming months, due to the  normalisation of economic activities, and the waning effect of the lower base recorded last  year. Overall, growth momentum in both manufacturing production and manufacturing  sales value is expected to stay soft, amid its cautious outlook on the manufacturing sector  and trade performance.

Source: BIMB Securities Research - 10 May 2023