Malaysia’s manufacturing activity to continue to expand in 1H’

Malaysia’s manufacturing activity to continue to expand in 1H’

Manufacturing activity in Malaysia kicked off the year on a positive note, in line with expectation of a strong first half (1H).

Last Friday, IHS Markit said Malaysia’s manufacturing conditions improved in January 2018, albeit only marginally, mainly driven by a renewed rise in new business.

The headline Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) — which measures the economic health of the manufacturing sector — rose from 49.9 in December to 50.5 in January this year. An index level above 50 indicates expansion.

Affin Hwang Investment Bank Bhd economist Alan Tan is of the view that manufacturing activity in Malaysia will remain in expansion mode for the first half of 2018 (1H18).

He expects the PMI to stay above the 50-mark, which partly reflects a healthy and synchronised global economy expansion where a steady growth in the US, Europe and China is seen.

With a PMI of 50.5 in January, he believes that the economy will sustain a 5.5% growth rate in 1H18 from an expected gross domestic product growth of 5.7% in the fourth quarter of 2017.

He also pointed out that the projection is also consistent with the recent upgrade by the International Monetary Fund of its forecast for world economic growth in 2018 to 3.9% from 3.7% earlier.

On the regional front, Tan noted that Malaysia’s manufacturing index is still playing catch-up this year on the back of an expected improvement in the domestic sector. This will provide some cushion to the possible slowdown in the export sector.

According to IHS Markit, the Asean manufacturing economy also started 2018 on a positive note, with the Nikkei Asean Manufacturing PMI indicating a return to growth in January after a subdued end to last year. The headline PMI rose from 49.9 in December to 50.2 in January this year.

United Overseas Bank (Malaysia) Bhd senior economist Julia Goh said the improved PMI reading for Malaysia is in tandem with the gains across most regional PMI readings in January.

IHS Markit said the January data showed that the upturn was relatively broad-based, with five of the seven countries covered by the survey reporting an improvement in business conditions, up from four at the end of 2017.

Only Indonesia and Singapore failed to see an improvement in manufacturing sector conditions, added IHS Markit.

Vietnam led the group with a PMI of 53.4, followed by Myanmar (51.7), the Philippines (51.7), Thailand (50.6), Malaysia (50.5), Indonesia (49.9) and Singapore (46.4).

She noted that the robust domestic demand has also been supportive of Malaysia’s manufacturing output particularly in the food and beverage, tobacco, construction materials and transport equipment segments.

Some of the positive takeaways she highlighted from the report included the improved PMI trend which had trended upwards since August 2017, and the expectations of improving demand and company expansions in the next 12 months.

Source: The Edge Markets / MIDA Website