KUALA LUMPUR: Analysts are optimistic about Malaysia's manufacturing sector's prospects  in the second half of the year, despite a slight dip in purchasing managers' index (PMI) to 49.9 in June.

Public Investment Bank Bhd (PublicInvest) said the country's PMI is expected to align with global trends, consistently surpassing the 50-level mark in the second half of 2024 (2H24), contingent on the stabilisation of global uncertainties.

The firm added that Malaysia's manufacturing sector is poised for positive growth in 2024, buoyed by strong global semiconductor market projections.  "With electric and electronic (E&E) exports comprising over 40 per cent of Malaysia's total exports, the sector stands to benefit significantly. Despite geopolitical tensions and economic uncertainties among key trading partners, Malaysia's exports are projected to rise by 5.4 per cent year-on-year (YoY) in 2024. Enhanced economic governance and an improved competitiveness ranking support this outlook," it said in a note today.

Furthermore, PublicInvest said the average PMI reading for the second quarter of 2024 (2Q24) reached its highest level since 3Q22, suggesting a positive trajectory for economic growth throughout the quarter.

It said this data indicates that the robust expansion reflected in recent official manufacturing production figures has continued beyond April. 

"Looking ahead, new order growth is anticipated to remain steady over the next year, underpinning a favourable outlook for manufacturing production.  "However, business sentiment has declined for the fifth consecutive month in June, reaching its lowest point since August 2023, which may temper some of the optimism," it noted.

Echoing similar views, Kenanga Research expects a significant expansion in the manufacturing sector, backed by resilient domestic demand.

The firm said this is coupled with the robust foreign direct investments to Malaysia which were largely influenced by the country'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," it said in a note. Kenanga also believes 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, the firm has maintained its bullish projection on the gross domestic product (GDP) at 4.5 per cent to five per cent in 2024.

This is in line with Bank Negara Malaysia and Ministry of Finance forecasts at four per cent to five per cent largely backed by the lower base effect, exports and a sustainable domestic demand.

Malaysia's manufacturing sector remained stable by the end of the second quarter, as reported by S&P Global Market Intelligence.  This was supported by a consecutive increase in new orders over the past two months, partly driven by higher exports, although overall demand remained subdued.

In June, the seasonally adjusted S&P Global Malaysia Manufacturing PMI stood at 49.9. 

This was slightly less positive compared with May, when the PMI showed a marginal improvement at 50.2.

Nevertheless, S&P said the average reading for 2Q24 was the highest since 3Q22, suggesting a positive outlook for economic growth during that period.

https://www.nst.com.my/business/economy/2024/07/1071219/analysts-confident-malaysias-manufacturing-sector-will-grow-second