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Q4 manufacturing prospects remain weak [24-10-2012]  
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Malaysia's manufacturing sector, despite being supported by domestic-oriented industries, will still have a challenging fourth quarter because of weak external demand drivers.

According to economists, the fourth quarter will continue a trend from the third quarter, where data for two of the three months that have been reported showed the impact on exports and factory output from the deepening crisis in the euro-zone and slowdown in China.

CIMB Investment Bank Bhd economic research head Lee Heng Guie told StarBiz that leading indicators, such as regional purchasing managers indices (PMIs), were still holding below 50 (showing a contraction), while statistically, there would be a pullback in the third quarter due to the relatively high base in the same quarter last year.

The electronic and electrical (E&E)-related industries, due to their high reliance on external demand, continue to be the major drag on exports, with the book-to-bill ratio for makers of semiconductor equipment remaining weak, indicating a weakening trend.

China's manufacturing PMI for the third quarter contracted for each of the three months and so did the manufacturing PMIs for South Korea, Taiwan and Japan.

Lee said due to the sector's continued weakness, a combination of domestic consumption and investments would continue to support the economy.

“It's a question of how strong investments and consumption will be, as this will support the domestic-oriented industries of the manufacturing sector,” he noted.

For the first half of the year, investments from the public and private sectors rose 21.3% compared with the same period last year.

By sector, private sector investments grew 22.4% while public sector investments expanded 19.5%.

Consumption for the first half rose 11.8% while on a sectoral basis, private consumption increased 8.1% and public consumption expanded 8.4%.

Meanwhile, economists point to the growth of the construction materials-related industries as a sign that investments via the Economic Transformation Programme (ETP) continue to support the manufacturing sector's domestic-oriented industries.

MIDF Amanah Investment Bank Bhd chief economist Anthony Dass said a number of ETP-related projects could be fast-tracked following the general election.

“This will help hold up construction materials-related industries as they are sensitive to investments,” he said, adding that the sector would also be supported by other domestic-demand driven segments such as food- and transportation-related industries.

Dass said the only bright spots in exports would be the primary industries segments but even this showed a mix picture with chemical and chemical products as well as wood and wood products to see demand hold up.

“For the sector, we see 5.4% year-on-year growth in the third quarter and 5.6% for the fourth quarter due to end-of-year festive demand,” he said.

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