DOMESTIC ECONOMIC EXPANSION SEEN CONTINUING DESPITE SLOWER GLOBAL GROWTH OUTLOOK

Malaysia's domestic growth is likely to continue, supported by resilient domestic demand amid steady labour market conditions and further improvement in the services sector.

The services sector will be backed by a gradual increase in tourism activities, despite the expectation of a continued slowdown in the global growth outlook, said Kenanga Research.

The slower-than-expected recovery in China's economy and the lag effect of the higher interest rate environment led by advanced economies, however, have resulted in the research firm revising its 2023 gross domestic product (GDP) growth forecast for Malaysia to between 3.5 and 4.0% from 4.7%(2022: 8.7%), it said in a research note.

This was also in line with the slower-than-expected GDP growth performance in the second quarter of 2023 (2Q 2023) at 2.9% against 5.6% in the first quarter. 

This came as the manufacturing purchasing managers' Index (PMI) reading in August saw a lower reading which reflects a persistent weakness in manufacturing conditions, largely due to subdued demand from overseas.

This was also partly due to the higher base effect recorded last year and as the economy returned to normalcy with the absence of stimulus measures, it said. 

Malaysia's manufacturing PMI remained unchanged in August at 47.8 from July, reflecting a subdued demand in the third quarter. The index has remained in contraction level (below the neutral level: 50.0) for the twelfth consecutive month or since September 2022.

Public Investment Bank is anticipating Malaysia's PMI trajectory to mirror the global trend, with expectations for it to persist below the 50-point threshold for the remainder of the year.

“The country's manufacturing output is expected to align with the short-term cyclical downturn witnessed in the semiconductor industry, which has been persistently grappling with adverse growth conditions,” it said in a research note. 

Its projections indicate that the manufacturing sector as a whole would experience a further moderation of only 2.0% for this year (8.1% in 2022). 

“Presently, there are limited signs of a recovery in the electrical and electronics (E&E) industry, (amid) a moderation in the pace of contraction this year,” it added.

MIDF Research sees the weakness in the manufacturing sector for Malaysia as in line with the global manufacturing trend and “therefore with the still weak PMI readings the sluggishness would continue in the second half (2H) this year amid subdued global demand.”

This was seen in PMI readings at below 50 in August for Japan (49.6), Philippines (49.7), South Korea (48.9), Thailand (48.9), the euro area (43.5) and the United States (47.9), it noted.