KUALA LUMPUR (Sept 2): While Malaysia's manufacturing activity has shown mild contraction in August, economists foresee a stable manufacturing condition moving forward, with companies generally confident about improved output in the coming year.

S&P Global, which compiles the Purchasing Managers’ Index (PMI) surveys, reported that Malaysia’s seasonally adjusted manufacturing PMI remained unchanged at 49.7 in August. A reading above 50 indicates expansion in manufacturing activity, while one below points to contraction in the sector.

According to Kenanga Research, the subdued performance in August was largely due to persistent moderation in output and new orders.

"While the manufacturing PMI reading demonstrated a patchy recovery in the middle of the third quarter of 2024, we remain optimistic that the manufacturing sector [will] regain traction towards the end of the year," the investment bank's team of economists said in a report on Monday.

The expected recovery, Kenanga said, will mainly be driven by the technology upcycle, fuelled by higher demand for artificial intelligence (AI) and various stimulus measures in China.

However, the research house warned that downside risks persist, mainly from external factors like renewed US-China trade tensions, the escalating Middle East crisis and the prolonged Russia-Ukraine war.

Meanwhile, BIMB Securities Research sees the manufacturing sector as likely stay subdued in the near term as firms focus on existing orders due to stagnant new order growth and reduce purchases, employment and inventory levels. Nevertheless, its outlook for the sector in the longer term was still positive.

"Firms were generally confident about improved output in the coming year, with solid overall optimism. However, they remained uncertain about the recovery's pace, noting downside risks tied to a slow global economy," it said in a note to clients.

"Despite a slight downturn in the manufacturing sector in the middle of the third quarter of 2024, recovery hopes persist due to steady domestic demand and modest gains in net exports, supported by the global semiconductor recovery," BIMB added.

On a regional level, BIMB pointed out that most Asean nations, including the Philippines and Thailand, sustained their manufacturing sector performance, except for Indonesia, which saw a further decline in August.

"Overall, most Asean nations faced subdued domestic and weaker export demand. Inflation pressures eased in most Asean nations, though some experienced accelerated inflation due to rising raw material prices, especially imports affected by exchange rate weakness," it said.

Over in China, its Caixin manufacturing PMI returned to an expansion in August at 50.4, from 49.8 in July, signalling market improvement with stable supply and demand. "Yet, issues persist with weak domestic demand, uncertain external demand, and low market optimism," BIMB noted.

Factory activity in South Korea and Taiwan also expanded in August, according to Reuters, while Japan saw a slower rate of contraction due in part to solid global demand for semiconductors. 

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