The manufacturing sector lost its momentum at the end of 3Q22 amid subdued demand, as firms scaled back their production and purchasing activity. On a positive note, firms reported increasing hiring, the highest in almost three and a half years. Nevertheless, Kenanga believes the slowdown is expected to be short-lived.
Weak production in September was mainly due to subdued demand conditions, new orders moderated ending a five-month sequence of expansion amid subdued demand. Similarly, new export orders slowed due to weak external demand, in line with the expectation of a global economic slowdown.
Input costs continued to increase due to higher raw material and logistic costs as well as exacerbated by currency weakness. Concurrently, output costs increased at a solid pace, with firms continuing to pass higher costs onto clients. Firms remained optimistic, but the degree of optimism dipped to a three-month low, sentiment is broadly at an average level amid hopes that weakness in demand conditions to be shortlived and will continue to recover in the year ahead. Meanwhile, firms reported success in hiring additional staff, resulting in the first expansion of the workforce in ten months and the sharpest increase in job creation since April 2019.
Manufacturing activity is expected to remain supported by domestic demand as Malaysia shifts to endemicity with the removal of almost entire pandemic restrictions and the improvement in household income backed by robust labour market conditions and ongoing policy support. Nevertheless, Kenanga does not discount the adverse effect of the global economic slowdown brought by the energy crisis in Europe, acceleration in global monetary policy tightening led by the US Fed, and uncertainty over China’s zero-COVID policy.
Against this backdrop, the research house revised its 2022 GDP growth projection earlier to 6.5% – 7.0% from 5.5% – 6.0%, as growth would likely be supported by strong private consumption. Going forward, it expects GDP growth to moderate to 4.0% – 4.5% in 2023, considering the imminent prospect of a global economic slowdown.
