• Manufacturing sales value plunged by 4.2% YoY
• Export-oriented output continued to decline, while domestic-oriented production maintained a positive trend
• Hiring in the manufacturing sector grew by 1.7% YoY
• Manufacturing sales are expected to improve gradually, driven by increased domestic spending and anticipated external demand recovery.

In December 2023, the Manufacturing sector witnessed a significant decline in sales, dropping by 4.2% to RM149.9bn (Nov: -2.6%). This marks the largest decrease since May 2020, which recorded a decline of 20.4% and marked the 7th consecutive month of decline. The decline was mainly driven by the sustained decrease in the Petroleum, chemical, rubber & plastic products sub-sector starting from June 2023, which recorded a negative 13.6% in December (Nov: -10.8%). Additionally, the Electrical & electronics products sub-sector experienced a 4.6% decline (Nov: - 5.3%), and the Food, beverages & tobacco sub-sector saw a 2.6% decrease (Nov: 2.0%).

Compared to the previous month, the sales value contracted by 3.3% as against RM155.0 bn in November (Nov: -1.1%).

The sales value of export-oriented industries, constituting nearly 70% of total sales, experienced a continued decline, dropping by 8.4% in December (Nov: 6.9%). The drop was primarily due to significant declines in the Manufacture of coke & refined petroleum products (Dec: - 24.9 %; Nov: -10.0%), Manufacture of vegetable & animal oils & fats (Dec: - 8.6%; Nov: -3.8%), and Manufacture of computer, electronics & optical products (Dec: -4.8%; Nov: -6.6%). Yet, the domestic-oriented industries maintained a positive trend, showing a growth (Dec: 6.7%; Nov: 8.8%). This was mainly driven by a robust expansion in the Manufacture of fabricated metal products, except machinery & equipment (Dec: 11.5%; Nov: 11.3%). Furthermore, there was an 8.0% growth in the Manufacture of motor vehicles, trailers & semi-trailers (Nov: 11.3%), and a 6.8% increase in the Manufacture of food processing products (Nov: 11.4%). On month-on-month basis both export and domesticoriented industries declined, with export-oriented industries down by 3.9% and domesticoriented industries by 1.8% MoM.

Steady hiring in manufacturing. In December 2023, the Manufacturing sector employed 2.37mn people, reflecting a 1.7% increase compared to the 2.34mn individuals in December 2022. The growth was primarily driven by the Food, beverages & tobacco (5.9%); Nonmetallic mineral products, basic metal & fabricated metal products (2.3%); and Wood, furniture, paper products & printing (2.2%) sub-sectors. Compared to the previous month, the number of employees in this sector slightly decreased by 0.1%. In line with the increase in the number of employees, manufacturing sector salaries & wages rose by 2.1% YoY to RM8.7 bn in December. Compared to November 2023, there was a significant 7.3% increase, in contrast to the slight 0.04% growth in the preceding month. Moreover, the sales value per employee decreased by 5.8% to reach RM63,121, while the average salaries & wages per employee in December 2023 were RM3,683, marking a 0.5% YoY increase.

The Fourth Quarter performance of the Manufacturing sector decelerated. The 4Q23 sales value of the Manufacturing sector declined for the third consecutive quarter, dropping by 2.7% YoY to reach RM461.5bn (3Q23: -2.9%). The decline in the fourth quarter was attributed to the Petroleum, chemical, rubber & plastics products sub-sector (-11.2%) and the Electrical & electronics products sub-sector (-4.2%). Contrarily, during the quarter, the growth rates for the number of employees and salaries & wages paid decelerated to 1.7% (3Q23: 2.4%) and 2.9% (3Q23: 3.0%), respectively.

Manufacturing sector sales value for 12M23 rose slightly. Overall performance in the year 2023, the sales value of the Manufacturing sector reached RM1.8tn, registering a marginal increase of 0.2% YoY (2022: 15.8%). Throughout the year, the number of employees increased by 1.7% to reach a total of 2.37mn individuals, while salaries & wages rose by 3.5% to RM97.8bn. Besides, the sales value per employee declined by 1.5%, totalling RM759,735.

Outlook

Manufacturing sales value plunged by 4.2% YoY in December, marking the largest decrease since May 2020, which saw a decline of 20.4%. This corresponds with the Industrial Production Index (IPI), which slipped by 0.1% in December (Nov: 0.6%), reflecting a contraction in the manufacturing sector after two consecutive months of growth. However, Malaysian manufacturers are optimistic about an increase in demand for the upcoming year. In January, Malaysia's PMI rebounded to 49.0 (Dec: 47.9) reaching a 16-month high, indicating early signs of improved demand in the Malaysian manufacturing sector for 2024. Regardless of the subdued state of the Malaysian manufacturing sector in 2023, we anticipate a gradual production recovery in 2024, driven by improved consumer confidence and employment, which will outweigh the effects of easing inflation. Despite a slow recovery in the manufacturing sector, a cautious outlook is maintained. Signs of a more extensive recovery in manufacturing may emerge by mid-2024.

Meanwhile, although the worldwide PMI surveys indicated a further deterioration of global trade in December, thereby extending the sequence of decline to nearly two years, however, the rate of contraction eased to the weakest in nine months and was only marginal despite heightening disruptions around the Red Sea at the start of the year. The seasonally adjusted PMI New Export Orders Index posted 49.2, up from 48.4 in December, rising to a level just below the long-run average. Still, the global manufacturing sector continued to lead the downturn in global trade at the start of 2024, albeit with the rate of decline moderating. The global manufacturing sector displayed signs of stabilization at the beginning of 2024. January Global Manufacturing PMI has risen to 50.0 (Dec: 49.0). Manufacturing new export orders extended the sequence of decline to 23 months in January, though the rate at which export demand fell was the slowest since June 2022. This was amidst improvements in overall demand conditions, with worldwide manufacturing total new orders (including domestic sales in each economy) near-stabilising in January (Jan’24: 49.8; Dec’23: 48.6). Furthermore, optimism among manufacturers rose at the beginning of 2024 with the manufacturing sector's PMI Future Output Index posting the highest reading in nine months (Jan’24: 62.5; Dec’23: 60.6). Hopes for better manufacturing sector conditions in the 12 months ahead were buoyed by rate cut prospects and the reduced drag from destocking efforts. After a slowdown in global manufacturing towards the end of the year, this news offers a glimmer of hope, suggesting that momentum is improving once more. Additionally, the year-ahead outlook improved, with business confidence reaching its highest level since April of the previous year.

The export performance of electronics/semiconductor powerhouses such as South Korea and Taiwan continued to show improvements, signalling hope for a recovery in manufacturing activity, particularly driven by the upturn in the electronics cycle. The sustained demand for Malaysia’s E&E products in 2024 is expected to be supported by a positive trend in the sector, aligning with the World Semiconductor Trade Statistics' forecast of a 13.1% rebound in global semiconductor sales. Nonetheless, global trade remains vulnerable to significant factors, including prolonged geopolitical tensions, disruptions in global supply chains, and uncertainties in commodity prices yet recovery is still anticipated in 2024.

Source: BIMB Securities Research - 8 Feb 2024