KUALA LUMPUR (Aug 1): Despite a weak Purchasing Managers Index (PMI) in July, economists expect a rebound in Malaysia's manufacturing activity, particularly in export-oriented industries, in the second half of the year (2H2024).

This optimism is driven by a technology upcycle, fuelled by increased demand for artificial intelligence and various stimulus measures in China - Malaysia's important key trade partner, according to Kenanga Research.

"However, downside risks persist, including renewed US-China trade tensions, the escalating Middle East crisis, and the ongoing Russia-Ukraine war, which continue to impact global supply chains and demand," the research house noted in a report on Thursday.

Kenanga anticipates a bullish outlook for 2024 gross domestic product (GDP) growth, forecasting it to reach the upper-end of the target range of 4.5%-5%, supported by a better-than-expected second-quarter growth of 5.8%, as estimated by the Department of Statistics Malaysia, along with strong domestic demand and continued expansion in the services sector.

BIMB Securities shared a similar view, expecting a recovery in 2H2024 due to steady domestic demand and improvement in net exports, driven by a global semiconductor recovery.

"The recent surge in electrical and electronics product sales, which saw a 12.2% growth compared to 2.7% in April, supports expectations for a 2H2024 global semiconductor recovery," the research house said, though it also flagged potential geopolitical conflicts and trade tensions.

Earlier on Thursday, S&P Global Market Intelligence released PMI data for Malaysia, showing that the manufacturing sector’s headline indicator fell to a three-month low in July due to renewed moderation in new orders. The seasonally adjusted PMI slightly decreased to 49.7 in July from 49.9 in June, indicating a marginal decline in sector health. A PMI above 50 signifies expansion, while below 50 indicates contraction, and a reading of 50 means no change.

S&P noted a slowdown in new orders, output, employment and stocks, although stronger conditions abroad led to a further increase in new export orders. Input cost inflation reached an eight-month high at the start of the third quarter, leading to the steepest rise in output prices since September 2022.

The historical relationship between the PMI and official GDP data suggests continued growth in the second quarter of 2024, although there may be a slight slowdown in the annual increase in manufacturing production. 

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