A bit of struggle but manufacturing sector should pull through

MALAYSIA’S Manufacturing Purchasing Managers’ Index (PMI) may be deemed to have started the year on a firm footing if weighed against the backdrop of a challenging operating environment – a spike in the number of COVID-19 infection rate both domestically and globally.

Warranting some consolation though is the fact that January’s score of 48.9 that is just a tad lower than December’s level of 49.1 but still higher than the five-year average of 48.5 despite the strong COVID-19 headwinds around the world.

PublicInvest Research economist Dr Rosnani Rasul observed that sector has been recovering well since its low in April last year, primarily because key economic sectors are allowed to operate during both the conditional movement control order (CMCO) and MCO 2.0 in addition to the strong domestic demand that offset weaknesses in external markets.

“Though encouraging, we remain cautious on the outlook given the resurgence in domestic COVID-19 cases which is showing little signs of slowing down,” she pointed out in an economic update. “Hiccups in the global COVID-19 vaccination programme is also a concern.”

Above all, the impending US-China second trade talk could put a speed bump on recovery process which was just about to recover from several crosswinds in the last two years.

Moving forward, Rosnani nevertheless expects the manufacturing sector to be on a road to recovery on the back of a revival in global demand for electrical & electronic (E&E) products.

“The sector is expected to make a turnaround for the year, thanks to escalating demand for E&E products amid work and learning that are becoming increasingly home-based,” she pointed out.

“The rapid transition towards a full 5G network by 2025 will also push demand for smartphone and tablets and therefore, an increase in E&E production.”

Meanwhile, Kenanga Research expects the persistent rise in COVID-19 cases both domestically and globally to continue to disrupt demand and supply chain in the near term and specifically in the 1Q2021.

“Nonetheless, we expect the recovery to resume modestly going into 2H 2021 on the back of wider roll-out of vaccine and gradual restoration of market demand and supply chains,” noted the research house.

“Consequently, we have revised the value-added manufacturing growth forecast to 5.4% from 5.6% in 2021 (2020F: -3.1%) in line with the projected albeit weak rebound in 2021 GDP growth (3.9%; 2020F: -5.3%),” added Kenanga Research. – Feb 2, 2021

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