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Malaysian manufacturing returns to growth in June

01 Jul 2020 / 23:52 H.

PETALING JAYA: Malaysia’s manufacturing sector returned to growth in June, rising sharply to 51.0, its highest since September 2018. This was up from 45.6 in May, indicating an improvement in the health of Malaysia’s goods producing sector and stronger economic growth more generally.

According to IHS Markit PMI’s survey, output grew at the joint fastest rate in the survey’s history as an increasing number of businesses restarted their operations.

Chief economist Chris Williamson said such a rapid turnaround in production since the severe collapse in April bodes well for a V-shaped recovery.

“However, a sustained recovery is by no means assured, and growth could easily lose momentum after the initial rebound.

“While business expectations continued to improve in June, confidence remains well below levels seen at the start of the year, in part reflecting worries about the impact of ongoing Covid-19 restrictions on demand, both at home and abroad,” he said, adding that weak export demand remains a particular concern.

At the same time, encouraged by signs of a recovery in its infancy, business confidence rose to a four-month high, reflecting more upbeat expectations towards market conditions over the coming year.

According to panel comments, the partial lifting of lockdown restrictions enabled factory operations to restart, and also led client demand to increase in many instances.

A number of firms also mentioned that their operating rates had risen to clear backlogs which had accumulated during factory closures.

The survey noted there were encouraging signs that demand conditions were beginning to stabilise during June, with the New Orders Index rising to a six-month high.

That said, overseas demand remained particularly fragile, weighing down total order book volumes.

Although the rate of decline in new export sales has eased considerably since April, international market demand was reportedly subdued by the ongoing pandemic.

Latest survey data meanwhile highlighted broadly neutral levels of outstanding work across the Malaysian manufacturing sector, suggesting that operations were being effectively run to match business requirements. Consequently, staffing levels were held nearly stable.

A focus on efficiency was also seen in survey data for purchasing activity and inventories. Buying levels were reduced in June, while pre- and post-production inventories fell as businesses managed production to meet demand.

Malaysian manufacturers continued to report slower input lead times in June, as transport restrictions exerted further pressure on vendors. Lastly, prices moved into inflation territory during June. Input costs rose amid stock shortages, higher transport fees and unfavourable exchange rate movements.

Output prices were subsequently increased for the first time this year.

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