FMM survey reveals moderate outlook for manufacturing sector in 1H2023

Activities in the manufacturing sector are expected to remain moderate in the first half of this year (1H2023) as manufacturers continue to brace for challenging business conditions, particularly in the pressure on inputs costs, increased costs of energy, and ringgit fluctuations, said the Federation of Malaysian Manufacturers (FMM) president Soh Thian Lai.

Soh said that apart from challenging business conditions domestically, the manufacturing sector is also growing slower in tandem with the slowing global economy.

“For the whole of 2022, overall sales have remained generally steady, although local sales had grown at a faster pace than export sales,” he said during FMM Business Condition Survey 2H2022 briefing in Kuala Lumpur, today.

Data from the survey revealed that for 1H2023, local sales are expected to be ahead of export sales in early 2023.

The survey found that both indexes for local and export sales had remained below the optimism threshold for the second survey in a row, implying that a slowdown in sales is expected on both the local and external fronts.

“About 22 percent of the respondents who are domestic-oriented projected higher sales in the coming months, while 32 percent responded negatively. For those who are export-oriented, 22 percent were positive in their near-term sales outlook, down from 26 percent previously,” Soh added.

The FMM president said it is also likely that inventory levels might moderate in line with the current trends in demand, except for the cost of production, capital investment and employment.

“All the other indexes had also registered below the demarcation level of optimism, further surmising the slow outlook, going forward,” he said.

The survey, which drew 745 respondents nationwide, tracked business confidence via the FMM Business Conditions Index (FMM BCI), covering the actual performance in 2H2022 and the outlook for 1H2023.

Higher cost of production

Soh said that weak external demand, especially from key trading partners, further escalation of geo-political tensions and the impact of China’s zero-Covid-19 policy, among others, likely weighed on the Malaysian manufacturing sector.

Domestically, he highlighted that the increase of the overnight policy rate by Bank Negara, which currently stands at 2.75 percent, has impacted the cost of production.

“The survey revealed that 55 percent are impacted by an increase in their cost of production. Cash flow and business operations of 44 percent of the respondents were affected, and 26 percent had to streamline their operations and strategies to maximise profits,” he said.

Asked about the higher energy cost, Soh said the government’s removal of the energy subsidy should be gradual to reduce the impact on the business community.

“The government should remove it in stages which will be less burdening for manufacturers, and they can adjust to the changes,” he said.

Commenting on the impact of multilateral agreements on businesses, Soh said 66 percent of the respondents were aware of the implementation of both the Regional Comprehensive Economic Partnership (RCEP) and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade agreements (FTAs).

“But only 11 percent are utilising both FTAs, while the RCEP and CPTPP are utilised by nine percent and three percent of the respondents, respectively. Some 77 percent of the respondents have not started utilising these FTAs, of which 41 percent cited the reason of not knowing where to start.

“Another 33 percent attributed their non-utilisation of the RCEP and CPTPP to their current utilisation of other FTAs and their lower duty rates,” he added.

- Bernama

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