Malaysia: Manufacturing PMI dips in May
June 3, 2019
The manufacturing Purchasing Managers’ Index (PMI), which is produced by IHS Markit and Nikkei, dropped to 48.8 in May from 49.4 in April. The headline thus fell further below the neutral 50-point mark indicating tougher operating conditions.
May’s decline was mainly driven by a fall in new export orders, purchasing activity and overall demand for Malaysian manufactured goods. Nevertheless, job creation and output were broadly stable in May relative to April, while business sentiment was upbeat regarding the future business climate. On the price front, inflationary pressures intensified due to a notable depreciation of the ringgit over the past month. This led to an increase in raw material prices, causing both input and output prices to tick up in May.
Commenting on May’s print, Chris Williamson, chief business economist at IHS Markit, noted:
“The PMI lost a little ground in May but remained well above the lows seen earlier in the year, hinting that the worst is hopefully over for Malaysia’s manufacturers […] An improvement in companies’ future output expectations to the highest for five-and-a-half years adds to signs that the business environment has started to brighten again. The improved manufacturing performance should therefore help drive faster economic growth of around 5% in the second quarter.”
Going forward, the Central Bank’s decision to cut rates in May, a weaker ringgit and still-moderate inflationary pressures should support operating conditions and external demand. That being said, the recent escalation in trade protectionism and sluggish manufacturing conditions in Asia and the Eurozone over the past month suggest manufacturing activity will continue to be somewhat subdued.
Author: Steven Burke, Economist