PETALING JAYA: Malaysia’s manufacturing sector saw strong improvements in April with renewed expansion in production levels and new orders, with the latter growing at the fastest pace since April 2019 as firms adjusted to Covid-19 restrictions and strengthening demand conditions, according to IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI).
It noted that manufacturers have grown increasingly optimistic in their outlook for the year ahead, with hopes that a successful vaccination programme would spur an accelerated recovery in production and confidence.
For April, the PMI rose to 53.9 points from 49.9 points reported for the previous month which indicated a solid improvement in the health of the manufacturing sector and the strongest recorded since the survey started in July 2012. Based on historical relationship, the reading pointed to a steady recovery from the impact of the pandemic.
IHS Markit said the data suggested that output for the month grew for the first time in nine months and the pace of growth was strongest since June 2020. It disclosed that firms commonly attributed the renewed growth to improved market demand leading to increased orders.
In addition, new order volumes returned to expansion territory in April, the first rise since September 2018, and the pace of increase was the quickest in seven years as manufacturers noted stronger client confidence, notably for new products.
IHS Markit also reported new export sales increased for the first time since November 2019, as demand in key markets across Asia and the United States recovered.
On the flip side, there was a renewed fall in employment at Malaysian manufacturing firms in April, although it was only marginal; staffing levels have fallen in 12 of the last 13 months with manufacturers noting a lack of foreign work permits being issued due to Covid-19 restrictions.
As new orders returned to growth, firms commented that pressure continues to build on capacity as outstanding business increased for the second successive month.
Simultaneously, input costs increased for the 11th consecutive month in April, reflecting higher prices of raw materials and logistics. The rate of input price inflation accelerated to the fastest in just over four years, and was rapid overall. As a result, manufacturers partially passed these higher costs to clients through higher output charges, which rose at a marked pace and extended the current sequence of inflation to 11 months.
Aside from that, firms reported lengthening lead time, having to resort to purchase larger quantities to safeguard against disruption, and post-production inventories had broadly stabilised.
Meanwhile, Malaysian manufacturers are increasingly optimistic regarding the year-ahead, with expectations reaching the highest since August 2019, underpinned by hopes that a successful vaccination programme would induce a broader economic recovery.
Commenting on the latest survey results, IHS Markit chief business economist Chris Williamson said reviving demand, notably for exports, as lockdowns have eased has helped drive a welcome surge of growth for Malaysian manufacturing. He pointed out that rising hopes for the vaccine rollout have meanwhile propelled business optimism for the year ahead to one of its highest levels since 2013.
“Supply-side constraints have developed further, however, acting as a damper on growth and could restrict the recovery. Backlogs of work are accumulating at a rate not seen for four years as firms struggle to produce enough goods to meet demand,” he said in a report.
Williamson said firms are not only reporting difficulties in finding sufficient numbers of suitable staff to raise production, but delivery delays of inputs are also worsening.
He stated that with the exception of April and May last year, during widespread factory shutdowns as a result of the first wave of the pandemic, the latest lengthening of supply chains is the longest in the survey’s nine-year history.
“Prices are rising as a result of the imbalance of demand and supply, with prices charged by producers increasing at one of the sharpest rates for four years. The concern is that these price hikes will inevitably hit consumers in coming months.”