Malaysia: Manufacturing PMI falls on weak demand, but optimism remains high
June 4, 2018
Data suggests a cooling of manufacturing activity in the second quarter of the year, with the manufacturing Purchasing Managers’ Index (PMI) dropping for the fourth consecutive month in May. The index, produced by IHS Markit in conjunction with Nikkei, fell from 48.6 in April to 47.6 on the back of steeper contractions in output and new orders. The index moved further below the crucial 50-point threshold that separates expansion from contraction in business activity in the manufacturing sector.
New orders contracted at the sharpest rate since December 2016 due to weakening domestic demand. Demand from abroad was also lackluster, as new export orders fell for the fourth consecutive month, with manufacturing output consequently declining. Due to reduced output, employment levels dropped for the first time in seven months. Manufacturers cited cost-cutting measures and weak demand as driving the reduction in their payroll numbers. Weak demand also led to a reduction in the stock of unfinished production. The deterioration further fed through to lower purchasing activity, with pre-production inventories slimming. Price pressures in May were driven by higher raw material costs, although input price inflation dropped to its lowest level since October 2016. Subsequently, output price inflation also eased.
On a more positive note, firms remained upbeat on the business outlook. Commenting on May’s result, Aashna Dodhia, Economist at IHS Markit, stated:
“A key PMI finding was that the manufacturers retained strong projections for output in the next 12 months, rooted in hopes that the new government will spur business activity in the year ahead.”
Author: Jan Lammersen, Economist