Bimb Research Highlights

Economic - Malaysian Manufacturing Retracted

Publish date: Mon, 01 Apr 2024, 04:52 PM
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Bimb Research Highlights
  • Most ASEAN Constituents Registered Deteriorations
  • Malaysia PMI eased to 48.4
  • Inflationary pressures soften across most ASEAN countries
  • China is off to a positive start this year


In March, Malaysian manufacturers saw a slight deepening of moderation, despite initial positive signs in 2024. Most ASEAN regions experienced contraction, with PMIs in Malaysia (Mar: 48.4; Feb: 49.5), Thai (Mar: 49.1; Feb: 45.3), and the Vietnam (Mar: 49.9; Feb: 50.4). Nevertheless, the region is backed by Indonesia (Mar: 54.2; Feb: 52.7) and Philippines (Mar: 50.9; Feb:51.0).

Indonesia's manufacturing sector surged in March with record output growth driven by domestic demand, leading to increased price pressures and the highest cost inflation rate in 18 months, prompting manufacturers to raise selling prices. Concerns arose about the Filipino manufacturing sector's health as the first quarter ended, with a production decline due to material shortages despite sustained demand. Securing materials temporarily could ease the decline, along with improved employment and increased buying to address shortages. Thailand's manufacturing sector improved as companies gained confidence despite falling new orders, leading to higher output. Additionally, inflationary pressures eased with lower input prices and stable supply chains, helping firms rebuild inventories for sustained output growth. Vietnamese manufacturing sector stalled due to subdued demand, affecting new orders and production. The PMI survey showed weak demand, with input cost inflation slowing and selling prices decreasing. Despite this, firms are optimistic about future growth, driving accelerated job creation by the first quarter's end.

The Caixin China manufacturing PMI reported the fifth consecutive month of growth, reaching the fastest pace since February 2023 (Mar: 51.1; Feb: 50.9), driven by increased inflows of new work, including from abroad. Employment declined as firm-controlled costs, while input prices fell marginally due to lower raw material costs. Consequently, firms reduced selling prices for the third consecutive month and the most in eight months to stimulate demand. The data aligned with the National Bureau of Statistics (NBS) manufacturing PMI, which rebounded strongly after the Lunar New Year holidays to reach 50.8 in March (Feb: 49.1). This is the first expansionary reading since September 2023 when it was at 50.2, offering relief to policymakers amid ongoing property sector challenges affecting the economy and confidence. The enhanced resumption of production after the Lunar New Year contributed to a boost in market vitality. This optimistic outcome followed recent better-than-expected export and retail sales data, indicating a positive start to the year for the world's second-largest economy.

Overall, some ASEAN nations exhibited tentative signs of sustained demand, while others continued to experience muted demand. Inflationary pressures eased in most ASEAN countries, with high input cost attributed to rising raw material costs due to El Nino, currency weakness and oil prices.


In March, the Malaysian manufacturing sector experienced a continued moderation due to subdued demand conditions. Slowdowns were notable in new orders, output, and employment, with business confidence reaching a sevenmonth low. However, there was a renewed improvement in vendor performance as suppliers met orders despite softer demand. Malaysia's PMI decreased to 48.4 in March (Feb: 49.5), indicating a slight moderation in the sector's health. Factory activity experienced its 19th consecutive month of decline in March, marking the fastest pace since last December. Employment was reduced for the third consecutive month, with the rate of job shedding being marginal but the steepest in four months as firms aligned headcounts with capacity requirements. Input cost inflation reached a three-month high due to currency weakness and higher global raw material prices, although it remained below the series average. Meanwhile, prices for manufactured goods remained unchanged from February, ending a seven-month sequence of inflation.


Looking ahead, Malaysian manufacturers were hopeful for future improvement while raising concerns about the lingering demand weakness. Still, a broader recovery is expected by mid-2024, supported by projected improvements in the unemployment rate and sustained growth in distributive trade sales, fueled by rising tourist arrivals and spending. Despite a marginal 0.8% decline in exports and an 8.4% increase in imports, Malaysia's trade performance in February 2024 maintained its positive trend, growing by 3.3% YoY. The trade balance remained in surplus for the 46th consecutive month, supporting expectations of improved export growth in 2024 despite potential monthly fluctuations. Despite the marginal drop in February exports, cumulative January-February export performance of 3.9% reinforces our view that a trade recovery is underway albeit bumpy. We anticipate export growth to be bolstered by the global electronics export downcycle bottoming out in 2H24. Also, the impressive recovery of Malaysia's Industrial Production Index (IPI) (Jan: 4.3%; Dec: -0.1) and Manufacturing Sales (Jan: 3.2%; Dec: -4.2) in January offers a glimmer of hope for a resurgence in Malaysia's manufacturing sector. Meanwhile, Malaysia's E&E subsector sales rebounded by 2.9% in January (Dec: -4.6%), in line with our forecast for sustained demand in 2024. Furthermore, China’s factory activity in March expanded by its strongest pace in more than a year and there will be a lag impact of between 1 to 2 quarters to Malaysia over China's robust March PMI numbers. However, caution persists due to global trade's vulnerability to factors like geopolitical tensions, supply chain disruptions, and commodity price uncertainties. Despite these challenges, recovery is anticipated in 2024.

Source: BIMB Securities Research - 1 Apr 2024

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