• Manufacturing sales value decreased by 3.0% YoY

• Performance of domestic-oriented industries remained vigorous

• Manufacturing sector employment increased by 1.7% YoY

• Productivity declined 4.6% YoY in July

• The period of slowdown is expected to continue

The sales value of the manufacturing sector fell for a second consecutive month in July, narrowing to negative 3.0% YoY to RM144.0bn from negative 4.0% in the preceding month. The deterioration was primarily influenced by the petroleum, chemical, rubber & plastic sub-sector, which registered a continuous decline, reaching negative 15.3% during the month (Jun: -12.4%). In addition, the decline was also attributable to the contraction in the food, beverages & tobacco (Jul: - 7.8%; Jun: 14.6%; May: -10.9%); and wood, furniture, paper products & printing (Jul: -0.6%; Jun: -1.1%) sub-sectors.

In comparison with the previous month, the sales value decreased by 2.4% as against RM147.4bn recorded in June 2023 (0.4%) while seasonally adjusted sales value decreased 1.6%.

The sales value of export-oriented industries which represented 72.1% of total sales continued to decline by 7.0% YoY in July (Jun: -7.4%) mainly attributed to the decrease in the manufacture of coke & refined petroleum products (Jul: -25.6%; Jun: -18.6%); manufacture of vegetable & animal oils & fats (Jul: -18.5%; Jun: -27.4%); and manufacture of rubber products (Jul: -10.8%; Jun: -13.2%). Nonetheless, the performance of domestic-oriented industries remained vigorous, reaching 9.2% YoY in July as compared to 6.8% in June, hence mitigating the impact of the deterioration in the export-oriented industries. The steady momentum of domestic-oriented industries was primarily underpinned by the strong growth in sales value of the manufacture of motor vehicles, trailers & semi-trailers, registering 22.0% (Jun: +10.5%) while manufacture of fabricated metal products, except machinery & equipment; and the manufacture of food processing products industries increased by 9.7% and 8.5%, (Jun: 7.4% and 7.5%) respectively. On a month-on-month basis, domestic-oriented industries expanded by 1.0%, while export-oriented industries returned to negative territory with a decline of 3.6%.

Hiring in manufacturing sector decreased marginally. The manufacturing sector engaged 2.34mn persons in July, an increase of 1.7% YoY as compared to the 2.30mn persons recorded a year ago. The rise was mainly supported by the food, beverages & tobacco (Jul: 5.8%: Jun: 5.5%); electrical & electronics products (Jul: 1.1%; Jun: 3.4%); and wood, furniture, paper products & printing (Jul: 2.1%; Jun: 1.8%) sub-sectors. As compared to the preceding month, the number of employees in this sector decreased marginally by 0.2%.

Similarly, the salaries & wages paid in the manufacturing sector also increased by 2.9% YoY, amounting to RM7.9bn in July. On a month-on-month comparison, the salaries & wages declined by 1.5% from RM8.0bn recorded in June. In addition, the average monthly salaries & wages per employee posted a year-on-year increase of 1.2% with a value of RM3,390 (July 2022: RM3,350). Nonetheless, average salaries & wages paid per employee slipped by 1.2% MoM (June 2023: RM3,432).

Meanwhile, the sales value per employee or productivity in July declined by 4.6% to RM61,518 as compared to RM64,510 in the same month of the previous year. On the same note, the average sales value per employee declined 2.1% as compared to June 2023.

Lower sales value in 7M23. Overall performance for January to July 2023, the sales value of the manufacturing sector reached RM1,032.6bn, increased by 2.5% YoY. During this period, the number of employees added by 1.7% to record a total of 2.34mn persons while salaries & wages grew by 3.8%, registering RM56.6bn. Consequently, the sales value per employee posted a marginal growth of 0.8%, amounting to RM441,255 for the first seven months of 2023.

Outlook

July marks the second consecutive month of declining manufacturing sales as growth in Malaysia's manufacturing sales declined 3.0% YoY. Although the Industrial Production Index (IPI) returned to positive territory in July, recording a 0.7% YoY growth as against -2.2% YoY recorded in the previous month, the output from manufacturing sector continued to decline, albeit with a smaller decrease of 0.2% YoY as compared to the -1.6% YoY registered in June.

Manufacturing Purchasing Managers’ Index (PMI) remained unchanged in August (Aug: 47.8; Jul: 47.8), reflecting a subdued demand in 3Q23. It remained in contraction level (below the neutral level: 50.0) for the twelfth consecutive month or since September 2022. The lower Manufacturing PMI reading in August reflects a persistent weakness in the manufacturing conditions largely due to subdued demand from the external sector and this suggests that manufacturing conditions continue to be challenging, with slower momentum in the sector.

Meanwhile, Malaysia’s export growth contracted for the fifth straight month in July (Jul: - 13.1%; Jun -14.1%) whilst on monthly basis exports fell sharply (Aug: -5.8%; Jun: 3.7%) reaching the lowest level in three months. Exports of manufactured goods sank by 9.8% YoY (Jun: -12.7%). This indicates a weaker start for the 3Q23 in line with expectations of a global economic slowdown and China’s poor economic recovery. There are no signs of trade rebounding as yet given risks ranging from softening global growth momentum to increasing trade restrictions. Demand from the advanced economies particularly the US and Europe slowed due to tighter monetary conditions, while China’s sagging economy further poses perils for countries around the globe. The period of slowdown is expected to continue towards the end of the year, as the impact of cumulative rate hikes among advanced and emerging economies increasingly affect aggregate demand. Downside risks remain given the uncertain global economic outlook and the potential for exports to weaken.

The overall outlook for the manufacturing sector appears mixed. While there is some rebound in the IPI, the ongoing contraction in the manufacturing PMI and significant declines in manufacturing sales and exports are causes for concern. The manufacturing sector is currently experiencing a period of decline, with multiple indicators pointing towards challenges in both domestic and international markets. The sector may continue to face uncertainty and challenges in the near future and hence, we still expect growth to remain moderate in the coming months and the 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. Against this backdrop, we have revised 2023 GDP growth forecast to 3.7% from the previous forecast of 4.5%.

Source: BIMB Securities Research - 12 Sept 2023