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Manufacturing Revival Proves Elusive
Malaysia Perspective | 24 May 2012

By Yang Ming Wan

Things seemed to have start looking up for the manufacturing sector when encouraging figures were released this February. Yet, upon taking a closer look, one would notice that this year’s Lunar New Year fell on January – unlike last year when it fell on February. The result of this astronomical phenomenon is an overlap in the basis of comparison for these two months, in which January figures were dismal while February figures were fantastic. This made it very difficult to declare for sure that there is indeed a revival in the manufacturing sector.

Under this climate of ambiguity, foreign trade reached a new record with February exports growing at 14 percent over the same period last year to RM56.87 billion. This is the first time exports breached the RM50 billion mark in a short month of February, since it broke the RM40 billion mark in February 2006.

Situation Abroad Yet To Stabilise
The stellar showing of exports is mainly attributed to the exceptional performance of the electrical and electronic manufacturing in February this year; the sector picked itself up from a period of deep decline and returned a 7.8 percent growth. This is the sector’s highest growth recorded over the 20 months since June 2010.

In fact, since the electrical and electronic manufacturing began contracting in September 2010, this is only the second positive growth recorded with the last time being September 2011 when its growth at 4 percent could not be sustained. As of January this year, the electrical and electronic sector was already in the throes of 16 continuous months of decline. Whether this single month of significant rebound is able to bring about a revival, reminisces the nine straight months of double-digit growth back in October 2009 to June 2010, is yet to be seen. As it is, hope still seems elusive.

Apart from the illusion of rosiness caused by the overlap in the basis for comparison, Malaysia’s foreign trade and exports over the past year had gone through a roller coaster ride. Take the past four months for example: November last year was bad, December was good, January this year was mediocre, and February was brilliant. Until the situations abroad stabilise, I am afraid we will still be ‘rocking and rolling’ along over the next few months.

Highest Record In 20 Months
Judging from the manufacturing figures, the situation is still quite promising. Manufacturing output increased by 9.4 percent year-on-year, the highest growth record for the 20 months since July 2010. Export-oriented manufacturing in February also grew by 8.5 percent year-on-year, another 20 months’ record since July 2010.

Looking at these figures from another angle, they reflect the changes in the manufacturing sector in February – to a large extent, these good results were driven by the export-oriented performance of the industry. The engine head of Malaysia’s export-oriented manufacturing industry – electrical and electronic manufacturing – grew by 8.1 percent. This figure is almost the exact mirror-image of the performance of the export-oriented manufacturing industry, even though this was the sector’s highest growth rate over the past 17 months since October 2010.

These numbers definitely look very heartening, yet we cannot afford to ignore the effect of the overlapping basis of comparison during the Lunar New Year as mentioned in the above analysis of our exports performance. Manufacturing production in February almost registered a double-digit growth, while the growth figure in January was only 1.3 percent. This huge gap is largely due to the overlap in the basis for comparison.

Relying On Domestic Demands For Stability In Overall Outlook
Regardless how we compare our figures, Malaysia’s manufacturing industry must still rely on domestic demands to sustain its growth while waiting for foreign demands to stabilise. Despite the significant growth in the export-oriented manufacturing sector in February this year, it is still the domestic market-oriented manufacturing sector that is anchoring the overall situation. This sector grew by 12 percent in February, again perhaps due to the overlapping basis for comparison, as compared to the 6.9 percent growth in January.

Although the domestic market-oriented manufacturing sector managed to maintain a double-digit growth in February this year, it still pales in comparison with the strong and above 14 percent growth in November and December last year.

At first glance, there seems to be a glimmer of hope in the export-oriented manufacturing sector; yet, after taking the performance of the domestic market-oriented manufacturing sector into consideration, the outlook is not yet clarified. The manufacturing sector is still waiting for the true dawn, when the economic situations at home and abroad stabilise and improve.

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