Market Digest

The Malaysian manufacturing sector saw a continuous decline in the first 3 months of 2009. In January 2009, the sales value of the manufacturing sector decreased 22.7 percent year-on-year to reach RM36.7 billion. In February 2009, the sector’s sales decreased 26.1 percent year-on-year to reach RM34.4 billion. While in March, the sector’s sales decreased 25.5 percent year-on-year to record RM36.6 billion.

Overall, the manufacturing sector shrank 17.6 percent in the first quarter of 2009. The contraction has been higher than what many industry participants had forecasted for the first quarter.

According to Frost & Sullivan’s Asia Pacific Consultant of Measurement & Instrumentation Practice, Tim Chuah, this decline in sales of the manufacturing sector can be largely attributed to the significant decrease in the sales value of industries such as refined petroleum products, computer and computer peripherals, basic iron and steel products, etc.

“Investments in Malaysia’s manufacturing sector in the first quarter of 2009 fell sharply, a decline of 67.1 percent as compared to the first quarter of 2008. The overall decline of the manufacturing sector is due to the country’s high dependence on external trade. The manufacturing sector output has been hit hard due to the country’s economic dependency on commodity exports and electronics,” he said.

Going into the second half of 2009, the manufacturing sector is showing signs of recovery; some manufacturers are registering a pick up in orders. “The demand is mainly from the Chinese market. Major economies like the United States and Europe are still reeling under severe macroeconomic pressures. The manufacturing sectors are likely to register positive growth by the last quarter of 2009,” Chuah added.

He continued, “The government has been accelerating development under fiscal stimulus measures totaling to RM67 billion. The government has also further eased guideline and incentives for foreign investors to boost investments. Malaysia’s economy is likely to improve in the next six to nine months, as local demand is likely to go up with stimulus packages to boost consumer spending, coupled with slow improvement in the external demand.”

In terms of industry specifics, the Malaysian Industrial Development Authority (MIDA) has identified solar energy as one of the growth areas. The government is promoting this sector to attract investments. The country is in a competitive position to host the solar industry as there is a wide availability of quality infrastructure, raw materials, and resources to set up world-class operations.

According to Chuah, in a recent statement, the government has announced accelerated developmental plans for the services industry. The government has acknowledged that the economy should not be solely dependent on the manufacturing sector. “In April 2009, the government announced that foreigners can hold up to 100 per cent ownership of a few service companies, specifically in areas such as health, tourism, transport, business services, social, and computer-related businesses,” he said.

The manufacturing productivity growth is forecasted to be between 0.5 to 1.1 percent for 2009 as investments are expected to increase marginally in the second half of 2009. Malaysia’s major export markets; United States, Japan, Singapore and Europe have entered a recession and with the economic slump likely to deepen, all these economies are likely to shrink further.

“In the month of March 2009, export of manufactured goods recorded a 10 percent growth as compared to February 2009. Exports have improved due to China and ASEAN economies. Recovery for economies world over is expected to come in the last quarter. The manufacturing sector is expected to contract to about 7.5-8.5 percent in 2009, compared to its previous year’s growth of 1.3 percent,” said Chuah.

Source: Frost & Sullivan