KUALA LUMPUR (July 2): Malaysia’s manufacturing sector is still on track for growth, economists said and shrugged off the slight contraction in June’s purchasing managers’ index (PMI).

The average reading for the second quarter of this year was the highest since the third quarter of 2022, indicating a potential improvement in economic growth, said TA Securities. Recent expansion, as indicated by official manufacturing production data, has continued beyond April, the research house noted.

“Looking ahead, sustained growth in new orders is expected over the coming year, bolstering optimism for the outlook of manufacturing production,” TA Securities said.

S&P Global, which compiles the surveys, reported that Malaysia’s seasonally adjusted manufacturing PMI dipped to 49.9 in June from 50.2 in May. A reading above 50 indicates expansion in manufacturing activity, while below-50 points to contraction in the sector.

PMIs in Asia have continued to outperform other regions and Asean PMI have continued to indicate expansion in June for the sixth consecutive month. Manufacturing activity in export-dependent countries such China, South Korea, Japan, Taiwan, Vietnam and Thailand have also risen in June.

PMIs of other economies continued to point towards “better regional trade conditions” despite the dip in Malaysia, MIDF Amanah Investment Bank said. “We remain optimistic on Malaysia's external trade performance” in the second half on better exports, including key electronics products, the house said.

Latest official data out on June 20 show that Malaysia’s exports grew 7.3% in May from a year earlier, sharply above forecast, thanks to a surge in shipments of electronics and palm oil amid higher deliveries to the US.

Shipments of electrical and electronic products, which account for more than one-third of gross exports, climbed 7.6% while that of palm oil surged 25.7%. Outbound deliveries of petroleum products contracted 18.6% while liquefied natural gas was down 21.2%.

“We expect a significant expansion in the manufacturing sector, backed by resilient domestic demand coupled with the robust foreign direct investments which were largely influenced by Malaysia’s favourable investment policies for foreign investors,” Kenanga Investment Bank said.

Further, improvement in the global semiconductor industry amid technology upcycle, as well as China’s economic recovery, will also benefit Malaysia, the research house added.

Global semiconductor industry sales in April have risen 15.8% year-on-year and 1.1% month-on-month, according to Semiconductor Industry Association’s last available data released on June 6. 

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