Malaysia: Manufacturing conditions deteriorate further in February amid growing coronavirus risks
March 3, 2020
The manufacturing Purchasing Managers’ Index (PMI), produced by IHS Markit, edged down to 48.5 in February from 48.8 in January. Consequently, the index fell further below the 50-threshold, signaling a further deterioration in operating conditions over the prior month.
February’s dip came on the back of heavy supply-side constraints provoked by the coronavirus outbreak in China. Delays and even cancellations in raw material deliveries caused supplier delivery times to lengthen to the greatest extent since data collection began in July 2012. As a result, manufacturing output moderated to an eight-month low in February. Meanwhile, foreign demand remained anemic—also impacted by the COVID-19 epidemic—as new export orders declined at the sharpest pace in over seven years. Input shortages caused backlogs of work to fall at a weaker rate, while manufacturers scaled back purchasing and hiring activity, given the uncertain external environment. Expectedly, manufacturers’ confidence in the production outlook fell to an over one-and-a-half-year low in February amid the outbreak-induced uncertainty, but they remained optimistic regardless.
Inflationary pressures intensified slightly in February amid the raw material shortages. Manufacturers, however, absorbed the cost burden and opted to lower output prices instead in a bid to revive demand.
Commenting on the latest results, Chris Williamson, chief business economist at IHS Markit, noted:
“Malaysia’s manufacturing sector reported a double hit from the coronavirus in February. […] Much of course depends on how long the COVID-19 outbreak persists, but with China’s factories returning to work there’s a good chance the worst of the supply shortages are over.”
Author: Lindsey Ice, Economist