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Manufacturing activity to remain on recovery path, says Kenanga Research

06/05/2022 11:19 AM

KUALA LUMPUR, May 6 (Bernama) -- Malaysia's manufacturing activity is expected to remain on a recovery path, mainly backed by the reopening of borders and pent-up demand, bolstered by various policy support and a higher vaccination rate, said Kenanga Research.

The brokerage firm said its growth projection remains subject to several downside risks attributable to global supply chain disruptions brought by ongoing China's zero-COVID policy and the Russia-Ukraine crisis.

“However, the adverse effect is expected to be limited, given Malaysia's export diversification and robust demand from key trading partners,” it said in a research note today.

The Manufacturing Purchasing Managers' Index (PMI) rose to a four-month high at 51.6 in April 2022 compared to 49.6 in March 2022 as manufacturing activity returned to an expansion at the start of the second quarter of 2022, mainly due to higher demand.

Kenanga Research said this signalled a continued recovery in the manufacturing sector, driven by various policy support and the transition to an endemic phase amid heightened external pressures. 

The brokerage firm maintains its first quarter of 2022 economic growth estimate at 5.7 per cent, bringing the overall 2022 growth to 5.0 per cent-5.5 per cent. 

Meanwhile, Public Investment Bank Bhd is cautious about the near-term outlook, given the ongoing supply chain disruptions that may affect output directly, especially for critical parts like chips which are widely used in almost all manufacturing products from vehicles to electronics and electrical.

The investment bank said the disruptions could also be weighed by labour shortages which could take time to resolve.

“Sentiment could also be hurt by growth slowdown in China and the country’s zero-COVID-19 policy which could disrupt the global supply chain further. The volatility in ASEAN currencies, given interest rate lift-off in advanced economies may also bite, given manufacturers' aversion to uncertainty,” it added.

Public Investment Bank said the global inflationary pressure was also a concern as it could dampen demand while the Russia-Ukraine conflict could also hurt, given the likely pressure on global inflation.  

However, the outlook would be supported by the region’s move into the endemic stage by the second half of 2022, if not earlier, said the investment bank.

It added that the turnaround in the manufacturing sector will also be aided by the authorities’ better handling of the COVID-19 situation and the resolve to implement targeted lockdowns for outbreak incidences.



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