KUALA LUMPUR (Sept 2): Malaysia’s manufacturing sector is poised to see “optimum growth” in the second half of 2024 (2H2024), driven by supportive domestic policies and strong global demand, said the Federation of Malaysian Manufacturers (FMM) on Monday.

Key indicators including business activity and production volumes point to strong growth ahead in the sector, FMM president Tan Sri Datuk Soh Thian Lai said at the release of the 25th edition of its Business Conditions Index survey.

“Businesses are worried about global uncertainties and demand from international markets. However, despite these concerns, the demand for Malaysian-made goods has shown an increase in our export rates over the past several months,” Soh said.

Further rebound in exports is expected in 2H2024 (index value seen rising 11 points to 100), ahead of a modest increase in domestic sales projection (up three points to 95), the report showed.

FMM has revised upwards its forecast on Malaysian gross domestic product to 5.1% (previously 4.1%), to be driven by a robust recovery path on strong exports, higher demand for private consumption, and more investments coming in.

Malaysia’s manufacturing sector grew 1.9% year-on-year in the first quarter of 2024 (1Q2024), and was higher at 4.7% in 2Q2024. FMM said that the manufacturing sector delivered a “commendable performance” in 1H2024, with overall business conditions improving modestly. 

The percentage of respondents looking at higher sales abroad in 2H2024 stood at 26%, compared with 24% of respondents who were expecting higher sales in 1H2024.

Similarly, less respondents see lower sales (27%), compared with 36% of respondents during the 1H2024 forecast survey.

“Factors such as recovery in the global market and Malaysia’s strategic trade agreements may have bolstered [the] respondents’ confidence in export prospects,” the report said.

The survey also indicated that production volumes are expected to rise by 11 points to 110, with higher capacity utilisation supported by improved supply chains, increased capital investment, and a favourable economic outlook.

“In the first seven months of 2024, Malaysia’s total trade improved close to 10% to about RM1.652 trillion. Of this, manufactured goods for exports [were] about RM735 billion, or 85.5% of total exports. This is substantial,” Soh highlighted.

The survey included responses from 616 participants across 16 industry sub-sectors — including food, beverages and tobacco, electrical and electronics, fabricated metals, and plastic products — with majority of respondents based in the Klang Valley, Johor, and Perak.

The survey also added that 49% of respondents identified upward pressure on input costs — driven by supply chain disruptions, energy price hikes, and raw material shortages — as a critical concern.

The expected cost of production index increased slightly from 159 to 162, reflecting ongoing inflationary pressures.

However, Soh noted that these cost pressures could ease in the coming months, as companies maintain higher inventory levels, typically between three- to six months, to meet extended order periods.

“They cannot rely on just-in-time inventory management. By having sufficient stock, especially during periods of high costs, companies can take advantage of lower input costs when the ringgit strengthens. This would reduce the cost of imported raw materials, thereby easing the overall input cost burden,” Soh said.

Other significant concerns included weak demand, cited by 51% of respondents; the depreciation of the ringgit (47%); and the increasingly competitive business landscape (47%).