• The Manufacturing Purchasing Managers’ Index (PMI) shrank marginally to 49.9 in June (May: 50.2) influenced by subdued demand.
  
  − PMI shown a reversal from the previous month, dipping below threshold level, mainly due to moderating demand, coupled with stagnant staffing levels albeit expansion in new orders.

• Production declined marginally, following June’s uptick.
  
  − New orders expanded for two consecutive months albeit at the softer rate, backed by the improvement in exports.
  
  − The purchase of inventories remained muted in June, influenced by the manufacturers’ preference to obtain less additional items in stock, given it has already reached mid-year.

• Price pressures remained elevated in June, as evidenced by higher raw material and weaker ringgit
  
  − Input cost remained inflated at an unchanged and solid rate from previous month.
  
  − Despite the stable cost inflation, output prices inched up at the fastest rate in 22 months.

• Positive optimism among firms, but the level of confidence remained muted
  
  − Optimism remained positive following the expected rise in new orders albeit the waning business confidence, whichhas reached the lowest level in ten months.
  
  − Following the slight increase in the employment levels in the preceding month, factory hiring remained stagnant in June on the back of declining backlog orders since February despite rising in new orders.

• Improvement in manufacturing conditions among regional economies
  
  − China (51.8; May: 51.7): The Caixin Manufacturing PMI retained its eight-month streak of expansion. The healthygrowth was largely attributable to the increase in new orders and improvement in the purchasing activity.
  
  − Vietnam (54.7; May: 50.3): Vietnam Manufacturing PMI increased sharply above the threshold in June, marking its three-month streak of expansion. New orders edged up at fastest pace, influencing the need for firms to expand the staffing levels and purchasing activity and further reflected the recovery in business conditions.

• Buoyant trade and investment performance to accelerate the manufacturing sector recovery
  
  − We expect a significant expansion in the manufacturing sector, backed by resilient domestic demand coupled withthe robust foreign direct investments to Malaysia which were largely influenced by Malaysia’s favourable investment policies for foreign investors. The buoyant labour market which will be driven by the upcoming implementation of the progressive wage policy will further improve the labour productivity. This could become an additional support for the recovery in the manufacturing sector.
  
  − Additionally, we believe that the improvement in the global semiconductor industry, rooted by computing needs and technology upcycle coupled with China’s economic recovery, will further benefit Malaysia.
  
  − Hence, we retain our bullish projection on the GDP at 4.5%-5.0% in 2024, in line with the BNM and MoF forecasts at 4.0%-5.0% largely backed by the lower base effect, exports and a sustainable domestic demand.

Source: Kenanga Research - 2 Jul 2024