November PMI points to robust external trade in 4Q17

This article first appeared in The Edge Financial Daily, on December 6, 2017.
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KUALA LUMPUR: The strong Nikkei Manufacturing Purchasing Managers Index (PMI) reading for November, which came in at 52 — its highest reading since April 2014 — points to robust external trade activities for the country in the fourth quarter of 2017 (4Q17), according to economists.

MIDF Research expects Malaysia’s external trade and industrial activities for the final quarter of 2017 to remain robust amid rising commodity prices and steady upbeat momentum in global demand.

It also believes the strong PMI figure is among the key factors contributing to the appreciation of the ringgit on Monday to 4.06 against the US dollar, from 4.09 on Nov 30.

“Despite inflationary pressures, we opine that rising global commodity prices are a boon to Malaysia’s manufacturing sector, especially petroleum-related industries. Moreover, manufacturers are producing more to cater to year-end sales globally,” the firm said in its note to investors yesterday.

In a separate note, Affin Hwang Investment Bank’s economic research department said the global manufacturing PMI continued its upward trend, rising from 53.5 in October to 54 in November — its highest reading since March 2011 — with growth of output, new orders, new export business and employment all gaining strength.

“We expect growth in Malaysia’s manufacturing sector to be well supported by favourable demand from economic growth in the advanced economies, as well as steadier gross domestic product (GDP) growth in China.

“China’s PMI was 50.8 in November, albeit slightly lower than 51 in October. Similarly, the Asean manufacturing PMI rose by 0.4 points to 50.8 in November [from] 50.4 in October.

“The improvement was reflected across most Asean countries, led by the Philippines (54.8), followed by Malaysia (52) and Myanmar (51.6), but Singapore’s manufacturing PMI fell to 47.4 during the month,” the firm noted.

Going forward, Affin expects Malaysia to benefit from sustained new export orders as domestic manufacturers turn slightly more positive in line with the improving business conditions in the global manufacturing sector.

“We expect Malaysia to benefit from sustained new export orders from abroad, though at a slower pace compared with 2017, especially in the electrical and electronics sector,” it said.

It also said Malaysia’s real GDP growth, which rose from 5.8% year-on-year (y-o-y) in 2Q17 to 6.2% y-o-y in 3Q17, is likely to sustain at about 5.5% y-o-y in 4Q17.

“While the latest Business Confidence Index surveyed by the Malaysian Institute of Economic Research fell 11 points from 114.1 in 2Q17 to 103.1 in 3Q17, as reflected in weaker manufacturing sales, manufacturers are expecting higher export sales and production level in 4Q17.

“This was also consistent with Malaysia’s Leading Economic Index, an indicator designed to predict the direction of the economic activity, which expanded by 2.6% in the month of August and September and 2.7% in July.

“These indices, which have been used as guidance to provide the future direction of the Malaysian economy, shows that economic growth continued to gather momentum going into 4Q17,” the firm said.

As such, Affin opined that the country’s real GDP growth will likely come in at the upper end of the official forecast of between 5.2% and 5.7% for 2017, in view of the better-than-expected GDP growth, which averaged 5.9% in the first three quarters of 2017.