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FMM survey shows manufacturing activities to remain moderate in 2H2023

FMM In The News: MSN, KUALA LUMPUR, September 11, 2023 - With risks in the global economy tilted towards the downside and flagging external demand still weighing on the Malaysian economy, manufacturing activities are expected to remain slow for the second half of 2023 (2H2023).

“The latest expected indices for business activity, local sales, production volume, capacity utilisation, capital investment and employment have also dipped to their two-year lows, a further reflection of the manufacturing sector's temperate expectations going forward,” the Federation of Malaysian Manufacturers' (FMM) business conditions survey showed.

Expected business activity fell six points to 86 points, from 92 in 1H2023, with just 22% of respondents looking forward to an improvement in business conditions soon; 42% of the respondents do not foresee any changes anytime soon while 36% responded negatively.

The index for expected local sales lost 10 points to 81 points from 91 in 1H2023, while expected export sales index rose four points to 88 from 84 previously, signalling a faster pace of export sales to domestic sales in the coming months.

Of those who sell domestically, 16% expected an increase in sales soon, down from 22% previously.

Of those who export, 23% projected higher near-term sales, and 35% adjusted their forecast lower.

Production volume is expected to be scaled down in anticipation of slower sales. 

The index for expected production volume fell to 86 points in 2H2023 from 97 in 1H2023, with 23% of respondents planning to increase their production volume in 2H2023, down from 30% previously. Another 37% will reduce their production soon, up from 33% in the last survey.

Capacity utilisation is expected to ease in tandem with the lower expectations of production volume and sales.  

The latest expected capacity utilisation index fell to 87 points, compared to the former survey’s 94. Twenty-three planned to increase their capacities in the coming months down from 26% previously, while 36% planned to reduce their capacities, up from 32% previously.

With production volume set to shrink, the cost of production is also expected to be reduced further in 2H2023, as indicated by the latest index for expected cost of production. 

Declining for the third time since 1H2022, this index settled at 148 currently. While costs are expected to increase for 54% of the respondents in the coming months, 40% anticipated their costs to remain the same for now.

The latest expected index for capital investment at 100 is at the optimism threshold, but has lost twelve points from the previous survey’s 112, implying that capital expenditure is expected to hold its own in 2H2023, albeit at a slower pace.

Manufacturing employment is expected to remain passive in the coming months, as denoted by the latest index for expected employment, which fell for the third consecutive time to 101. The index stood at 121 in 1H2022, 117 in 2H2022 and 113 in 1H2023.

Of the respondents, 64% are planning to put employment plans on hold for now, while 18% are contemplating retrenchment before the year is out; 19% of the respondents plan to increase their headcount soon.

To maintain the growth of their businesses for 2H2023 amid persistent cost and demand pressures, most (41%) respondents are planning to maintain their current 1H2023 position for 2H2023. 

Another 27% are considering streamlining their production lines while 18% will likely engage in high-growth projects. Only 8% are interested in digitalising their businesses.

The semi-annual survey by the FMM involved 351 respondents nationwide and was conducted from July 5 to Aug 18 this year.

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