November’s PMI Also Signals Sustained Real GDP Growth in 4Q17

Malaysia’s manufacturing Purchasing Managers’ Index (PMI) rose sharply by 3.4 percentage points to 52 in November (48.6 in October), exceeding the 50-level mark and was the highest index recorded since April 2013. The sharp improvement in November’s PMI was reflected across the board, signalling continuation of the uptrend in the country’s manufacturing sector in 4Q17. On a quarterly basis, Malaysia’s manufacturing PMI strengthened from 48.8 in 2Q17 to 49.5 in 3Q17 and 50.3 during Oct-Nov periods.

Among the PMI components, the latest Markit survey showed stronger reading in production and new orders during the month, but other subcomponents also improved, supported by higher domestic and overseas demand conditions, where firms have also raised their payroll numbers at the strongest pace since Dec 2012.

The country’s real GDP growth rose from 5.8% yoy in 2Q17 to 6.2% in 3Q17, and we believe likely to sustain at about 5.5% in 4Q17. While the latest Business Confidence Index (BCI) surveyed by the Malaysian Institute of Economic Research (MIER) fell by 11 points from 114.1 in 2Q17 to 103.1 in 3Q17, as reflected in weaker manufacturing sales, manufacturers are expecting higher export sales and production level in 4Q17. This was also consistent with Malaysia’s leading economic index (LEI), an indicator designed to predict the direction of the economic activity, which expanded by 2.6% in the month of August and September (2.7% in July). These indexes, which have been used as guidance to provide the future direction of the Malaysian economy, shows that economic growth continued to gather momentum going into 4Q17.

We believe Malaysia’s real GDP growth will likely to be at the upper-end of the official forecast of between 5.2%-5.7% for 2017, in view of the better-thanexpected GDP growth averaging 5.9% in the first three quarters of 2017. However, for full year 2018, we expect growth to slow and average around 4.9%, partly due to high base effect in 2017.

Global manufacturing PMI continued its upward trend, rising from 53.5 in October to 54 in November, its highest reading since March 2011, with growth of output, new orders, new export business and employment all gaining strength. We expect growth in Malaysia’s manufacturing sector to be well supported by favourable demand from economic growth in the advanced economies, as well as steadier GDP growth in China. China’s PMI was 50.8 in November, albeit slightly lower than 51 in October.

Similarly, Asean manufacturing Purchasing Managers Index (PMI) rose by 0.4 points to 50.8 in November (50.4 in October). The improvement was reflected across most Asean countries, led by Philippines (54.8), followed by Malaysia (52.0) and Myanmar (51.6), but Singapore’s manufacturing PMI fell to 47.4 during the month.

Going forward, as domestic manufacturers turned slightly more positive in line with improvement in business conditions in the global manufacturing sector, we expect Malaysia to benefit from sustain new export orders from abroad, though at a slower pace compared with 2017, especially in the electronics and electrical (E&E) sector.

Source: Affin Hwang Research - 5 Dec 2017