Local manufacturers raise production for first time in 23 months

PETALING JAYA: The headline Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI), a composite single-figure indicator of manufacturing performance, rose from 48.6 in January to 49.4 in February, the highest level since May 2015 and pointed to a weaker downturn in Malaysia’s goods producing sector.
The health of Malaysia’s manufacturing sector deteriorated at a weaker pace in February. Manufacturers raised production for the first time in 23 months, as levels of outstanding business accumulated at the quickest pace in the series history.
However, goods producers had to contend with another decline in new business levels, contributing to job shedding for the first time in six months.
Meanwhile, unfavourable exchange rate movements were reflected in input costs and output charges increasing at survey record rates.
New business received by Malaysia’s manufacturing firms contracted further during February, lengthening the current sequence of decline to two years. There was some evidence provided by panel members linking the fall in new work to sluggish market conditions. Meanwhile, volumes of new export orders remained unchanged since January.
Despite new orders contracting, goods producers raised their output levels for the first time since March 2015. That said, the rate of expansion was only moderate. The rise was reflected in the sharpest accumulation of finished goods stock for 15 months.
Job shedding was evident in Malaysia’s manufacturing sector for the first time since August 2016, albeit at a relatively moderate pace. Subsequently, firms registered a second successive accumulation in their outstanding business. In fact, the rate at which backlogs of work increased was the quickest recorded in the series history so far.
Exchange rate pressures contributed to a further increase in average cost burdens faced by Malaysian manufacturers in February. Moreover, the rate of inflation surged and was substantial overall.
Meanwhile, manufacturers scaled back their input buying for a 21st month in a row in February, albeit at the weakest rate of since August 2016.
However, pre-production inventories grew for the first time in six months.
Malaysia’s manufacturers remained confident on their 12-month outlook on output growth in February. In fact, the level of positive sentiment rose to a 31-month high, despite being only moderate overall.
Commenting on the Malaysian Manufacturing PMI survey data, Samuel Agass, economist at IHS Markit, which compiles the survey, said the first increase in Malaysian manufacturing output for 23 months could not prevent a further deterioration in the health of the sector, as declines in both new orders and hiring weighed on the overall performance of goods producers.
“However, the downturn is easing and with backlogs of work accumulating at the quickest pace in the survey’s history, firms look set to sustain the uptick in output over the coming few months.”