Manufacturing sector in positive territory for first time in two years

PETALING JAYA: Malaysia’s manufacturing industry registered its first net improvement above the 50-point threshold since March 2015, underpinned by resilient export orders.
The headline Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) improved to 50.7 in April, from 49.5. A reading above 50 indicates an overall increase in manufacturing activity, below 50 an overall decrease.
The PMI was supported by a solid gain in new export orders, the best since July 2014, as foreign demand for Malaysian produced goods strengthened and helped to offset ongoing weakness from domestic-based clients.
China, Europe, Japan and the Middle East were all notable sources of new sales success.
With output rising at a slightly faster rate than new business over the month, manufacturers were able to make inroads into their backlogs of work outstanding. April’s survey marked the first time that backlogs have fallen in 2017 so far, with the decline the greatest recorded for a year.
Subsequently there was little need for companies to recruit additional staff, and April’s survey showed little change in employment numbers compared to the previous month. A number of firms commented on difficulties and delays in the recruitment of foreign workers.
There was also evidence in the latest survey of deteriorating supplier delivery times, with April’s figures showing the greatest lengthening for nearly 3½ years. A number of firms commented on difficulties with imported goods clearing Malaysian Customs.
Meanwhile, there were again reports that adverse currency movements had raised the price of raw materials. Average input prices subsequently rose sharply during April, with the rate of inflation remaining historically high. Where possible, Malaysian manufacturers sought to pass on their increased costs to clients through a rise in average output charges.
In addition, a number of companies reported being buoyed by April’s strengthening of new orders and production, which helped to underpin ongoing confidence that growth will be sustained over the coming 12 months.
Commenting on the Malaysian Manufacturing PMI survey data, Paul Smith, senior economist at IHS Markit, which compiles the survey, said April’s survey marked a somewhat positive turnaround for the Malaysian manufacturing economy, with output and new orders rising concurrently for the first time in over two years.
“Growth is being underpinned by strengthened sales from abroad, which has helped to offset ongoing domestic demand weakness.
“With export growth also possibly supported by relative currency weakness, the corollary was a further sharp rise in input costs, with firms seeking to pass these on wherever possible to clients.”