Malaysia: Manufacturing PMI hits over one-year high in December
January 7, 2020
The manufacturing Purchasing Managers’ Index (PMI), produced by IHS Markit, rose to 50.0 in December from 49.5 in November. The index thus hit the 50-threshold, signaling operating conditions in the manufacturing sector were broadly stable at the close of the year, after remaining below the threshold for almost the entirety of 2019. According to IHS Markit, the PMI result suggests annual GDP growth of roughly 5.5% in the fourth quarter.
The neutral reading in December was driven by stronger new orders and production growth, which both hit an over one-year high. Rising new business inflows were dominantly boosted by strong domestic demand as new export orders stagnated in the month. Improving demand prompted firms to ramp up purchasing activity in December at a 15-month strong pace, which led to the first rise in pre-production inventories since October 2018. That said, producers had adequate capacity to work through backlogs for the 16th month running, which encouraged firms to keep head counts relatively unchanged. Turning to the outlook, manufacturers were notably more optimistic for the year ahead, with confidence reaching one of the highest levels in six years.
Inflationary pressures intensified in December, with input price inflation accelerating due in part to a weaker ringgit and higher commodity prices. Manufacturers, however, passed on the cost burden through higher output prices.
Commenting on the latest results, Chris Williamson, chief business economist at IHS Markit, noted:
“Malaysia’s manufacturers move into 2020 reporting increasingly brighter business conditions […] Whether expectations of faster growth in 2020 materialise will likely depend on global trade developments and ongoing uncertainty in relation to trade wars, meaning firms continue to focus on keeping costs low.”
Author: Lindsey Ice, Economist