Malaysian Manufacturers Anticipate Strong Export Growth in 2H2024

The Federation of Malaysian Manufacturers (FMM) has forecasted “optimum growth” for Malaysia's manufacturing sector in the second half of 2024 (2H2024), fueled by favorable domestic policies and robust global demand. Key indicators such as business activity and production volumes suggest a positive outlook, according to FMM president Tan Sri Datuk Soh Thian Lai, who presented findings from the 25th edition of FMM’s Business Conditions Index survey.

Key Takeaways:

1. Positive Export Outlook: Malaysian manufacturers expect a continued rebound in exports during 2H2024, with the export index rising by 11 points to 100, while domestic sales are projected to increase modestly by three points to 95. The FMM has revised its forecast for Malaysia’s GDP growth to 5.1% (up from 4.1%), driven by strong export performance, higher private consumption demand, and increased investments.

2. Improved Manufacturing Performance: The sector grew by 1.9% year-on-year in 1Q2024, accelerating to 4.7% in 2Q2024. The survey reveals that 26% of respondents anticipate higher sales abroad in 2H2024, compared to 24% in 1H2024, with fewer respondents (27%) expecting lower sales than in the previous forecast (36%). Factors contributing to this confidence include global market recovery and strategic trade agreements.

3. Rising Production and Capacity Utilization: Production volumes are expected to rise by 11 points to 110, driven by higher capacity utilization, improved supply chains, increased capital investment, and a favorable economic outlook. Malaysia's total trade improved nearly 10% to RM1.652 trillion in the first seven months of 2024, with manufactured goods accounting for 85.5% of total exports, a substantial share.

Challenges and Cost Pressures:

• Rising Production Costs: Despite the optimistic outlook, 49% of respondents highlighted upward pressure on input costs due to supply chain disruptions, energy price hikes, and raw material shortages. The production cost index slightly increased from 159 to 162, reflecting ongoing inflationary pressures.
• Strategies to Mitigate Cost Increases: FMM president Soh noted that maintaining higher inventory levels could help companies manage costs. By holding sufficient stock, companies can take advantage of lower input costs if the ringgit strengthens, thereby reducing the cost burden of imported raw materials.
• Other Concerns: Additional challenges identified by respondents included weak demand (51%), the depreciation of the ringgit (47%), and an increasingly competitive business landscape (47%).

The survey included responses from 616 participants across various sub-sectors, including food, beverages, tobacco, electrical and electronics, fabricated metals, and plastic products, with most respondents based in key industrial areas such as Klang Valley, Johor, and Perak.