Malaysia: Manufacturing sector activity moderates further in March
April 2, 2018
The manufacturing sector ended the first quarter on a feeble note, with operating conditions deteriorating for a second consecutive month in March. Weighed down by subdued output and export levels, the manufacturing Purchasing Managers’ Index (PMI), produced by IHS Markit, eased to 49.5 in March from 49.9 in February. As a result, the PMI now lies further below the 50-point threshold that separates expansion from contraction in business activity in the manufacturing sector.
Instrumental to March’s weakness was a decline in manufacturing production for the first time in eight months. Survey respondents largely linked meagre production levels to limited demand. Indeed, domestic new orders declined modestly while new export orders fell at its fastest pace in 15 months. On a similar note, lower production requirements saw business working through outstanding business in March, with backlogs of work declining for a tenth consecutive month. Manufacturers, however, did increase their staffing levels, although the pace of employment growth was fractional. Meanwhile, purchasing activity fell for a fourth consecutive month on the back of limited restocking needs amid dwindling demand.
On the price front, manufacturers saw input costs increasing markedly on the back of rising raw material prices. In a bid to protect margins, firms rolled over additional costs onto consumers, although the pace of output inflation was modest overall. In line with rising costs and subdued demand dynamics, manufacturers’ optimism regarding output in the next twelve months moderated. That said, manufacturers still expect output to regain traction on the back of higher expected demand and the roll-out of new projects.
Malaysia Fixed Investment Forecast
FocusEconomics Consensus Forecast panelists see fixed investment rising 5.7% in 2018, which is up 0.1 percentage points from last month’s estimate. For 2019, the panel expects fixed investment to increase 6.4%.
Author: David Ampudia, Economist