THE Federation of Malaysian Manufacturers (FMM) said the country’s manufacturing sector slowed down further in the first half of 2023 (1H2023) and with the global economy tilted towards the downside, the sector’s outlook for the 2H2023 remains cautious.

Looking ahead, FMM said the sector is “likely in anticipation of the persistently weak external conditions and (waiting for) clearer domestic economic policies and directions from the government to help spur higher investments and Malaysia’s growth momentum.”

This was gleaned from its FMM Business Conditions Survey conducted from July 5 to August 18, which drew 351 respondents nationwide. The survey tracked business confidence via the FMM Business Conditions Index and covered the actual performance in 1H2023 and outlook for 2H2023. 

The survey showed that all indicators had declined from the previous survey, except for production cost, said FMM in a statement. 

The statement said 27% are considering streamlining their production lines, 18% will likely engage in high-growth projects and only 8% are interested in digitalising their businesses.

The survey indicated most respondents were “cautiously optimistic” about 2024 economic outlook, 35% said the economy would improve in 2024, 39% were neutral and 25% were pessimistic.

The statement also said companies are exploring the use of alternative currencies for their imports and exports to reduce US dollar reliance with the Chinese renminbi as their top choice, followed by the euro and Japanese yen.

On the impact of fifth rise in the overnight policy rate (OPR) by another 25 basis points to 3% in May by Bank Negara Malaysia – maintained at 3% last Thursday – the statement said 41% of the respondents saw a rise of between 1% and 3% in operating cost while 19% said cost rose by 4-6%. 

Only 25% were not affected by the May OPR rise.

Should the OPR increase further by 25 basis points by end-2023, the impact on most business revenues and profits is “expected to be minimal”, that is, less than 30%, as indicated by between 35% and 44% of the respondents, the statement said. – Bernama, September 11, 2023.