High capacity signals economic recovery
PETALING JAYA: The manufacturing industry operating at 80.8% for the first quarter of 2024 (1Q24) is a good signal that the economy is on track and is likely to continue this way for the rest of the year.

Sunway University professor of economics Prof Yeah Kim Leng told StarBiz that at the current rate, the manufacturing industry is deemed to be operating at full capacity.

According to Yeah, the higher capacity utilisation reflects strong demand, including restocking for the coming months.

“Although it is a coincident variable that reflects current demand conditions, it affirms the pickup in industrial output and merchandise trade,” he said.

Yead added that another positive implication is the increase in capital investment to expand capacity is likely to ensue.

“This is likely to take place, especially in the face of growing domestic and external demand.

“All these economic indicators affirm the strengthening domestic economy in line with the higher gross domestic product (GDP) growth projected for this year,” he said.

The country achieved a GDP growth of 4.2% in 1Q24, outperforming the forecasts of many economists. Robust private consumption was said to have buoyed the economy, alongside an uptick in private consumption and improved exports.

Rakuten Trade head of equity sales and seasoned analyst Vincent Lau agreed, stating that the higher capacity utilisation rate was a signal a sustained recovery is in sight, particularly for exports.

However, he said there is still room for improvement. “There is room for better days and the capacity utilisation can still be higher. For major exporters, most expect a stronger and better second half of the year. I am fairly positive on the state of the economy.”

Lau doesn’t foresee the US economy crashing despite it starting the year on a softer note.

The Statistics Department reported this week that increased capacity utilisation rate in 1Q24 was attributable to the performance in January (80.9%) and March (81.6%), with both exceeding 80%.

It said the capacity utilisation rate for February 2024 stood at 79.8%.

Chief statistician Datuk Seri Mohd Uzir Mahidin said almost all sub-sectors posted an increase in capacity utilisation, particularly in the non-metallic mineral products, basic metal and fabricated metal products, as well as wood products, furniture, paper products and printing sub-sectors.

“This higher capacity rate resulted in a 2.1% year-on-year increase in the Industrial Production Index for the manufacturing industry during the quarter,” he said.

He added that factors such as low demand, insufficient supply of materials and the repair and maintenance of machinery and equipment remained the cause of under-utilisation of capacity in the manufacturing industry.

However, domestic-oriented industries expanded significantly to a capacity utilisation rate of 83.7% in 1Q24, up by 2.8 percentage points compared to the same quarter in the previous year.

Four states had capacity utilisation rates surpassing the national rate in 1Q24 –Labuan (95.9%), Negri Sembilan (84.9%), Selangor (83.1%) and Johor (81%).
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The manufacturing industry operating at 80.8% for the first quarter of 2024 (1Q24) is a good signal that the economy is on track and is likely to continue this way for the rest of the year.