KUALA LUMPUR: Kenanga Investment Bank Bhd believes the domestic manufacturing condition will improve further towards the end of the year, mainly driven by the expected upswing in the technology cycle and China’s gradual recovery following a significant stimulus implemented by the country.
The research firm said, nevertheless, the manufacturing condition could experience a sluggish recovery in the near term, as reflected by the latest manufacturing purchasing managers’ index (PMI) reading, which fell to 48.4 in March from 49.5 in February and remained at a contraction level since August 2022.
“Our assumption is also premise on the positive growth trajectory supported by higher demand from regional peers and better-than-anticipated performance among advanced economies.
“With that said, we project the first quarter (Q1) 2024 gross domestic product (GDP) growth to expand to 3.3 per cent and maintain the overall growth forecast at 4.5-5.0 per cent in 2024,” Kenanga said in a note.
Malaysia’s industrial production index (IPI) slowed in February at 3.1 per cent year-on-year (YoY) from January’s 4.3 per cent but beat Kenanga Investment Bank Bhd’s expectations of 1.8 per cent and the consensus of 1.8 per cent.
The research firm said that overall, the growth was partially weighed down by a slowdown in the manufacturing sector but mitigated by higher growth in the electricity and mining index and partly due to a lower base effect.
On a month-on-month (MoM) basis, the IPI was down to -6.3 per cent from January’s 2.0 per cent, a sharp fall to a ten-month low. This was partly attributable to a seasonal factor amid shorter working months and festive holidays.
Kenanga noted that the manufacturing index moderated in February at 1.2 per cent YoY from 3.7 per cent in January.
Domestic-oriented manufacturing slowed to 3.8 per cent from 8.0 per cent in January. However, it remained supported by fabricated metal products (8.4 per cent), followed by other non-metallic mineral products (5.1 per cent).
Export-oriented manufacturing contracted slightly at -0.1 per cent in February from 1.6 per cent in January due to a sharp decline in the manufacture of vegetable and animal oils and fats (-13.5 per cent), followed by chemicals and chemical products (-2.8 per cent) and electrical equipment (-2.2 per cent).
On MoM, domestic manufacturing fell to a ten-month low of -6.3 per cent from 1.8 per cent in January, following a positive turnaround in the preceding month.
Mining index growth expanded to 8.1 per cent to a 16-month high from 5.0 per cent in January.
This is attributable to a higher natural gas output (11.9 per cent), followed by crude oil and natural gas extraction (8.1 per cent).
On MoM, the index fell to an eight-month low of -6.9 per cent from 3.1 per cent recorded in January.
The electricity index accelerated to an 18-month high, or the highest since August 2022, of 10.9 per cent from 8.3 per cent recorded in January.
On a MoM basis, the index fell to a three-month low of -4.5 per cent from January’s 2.0 per cent following two straight months of expansion.
Kenanga retained the forecast of the domestic manufacturing index at 4.6 per cent in 2024, as momentum may pick up in the second half (2H) of 2024.
