Malaysia: Manufacturing sectors enters 2020 on weaker footing
February 3, 2020
The manufacturing Purchasing Managers’ Index (PMI), produced by IHS Markit, ticked down to 48.8 in January from 50.0 in December. Consequently, the index returned below the 50-threshold that signals an improvement in operating conditions over the prior month, after briefly hitting the crucial mark in December.
The deterioration in January was largely driven by the first decline in new export orders since last October, with anecdotes pointing to a still-adverse external environment. As a result, new business inflows moderated in January and manufacturers scaled back production slightly from December. This fed through to hiring activity, which declined slightly in January. However, firms continued to work through backlogs of business. On a brighter note, despite weaker demand in January, manufacturers remained upbeat about the outlook for the upcoming 12 months, thanks to expectations of an improvement in demand, supportive government policies, and the signing of the “phase one” U.S.-China trade agreement.
Inflationary pressures intensified again in January, with input price inflation accelerating to a five-month high due in part to supply shortages. Manufacturers, however, absorbed most of the cost burden as output prices rose only fractionally.
Commenting on the latest results, Chris Williamson, chief business economist at IHS Markit, noted:
“Malaysia’s manufacturers started 2020 on a softer footing. Much of the renewed weakness was a function of deteriorating external demand, with export orders under further pressure […] Trade war developments will likely therefore play a major role in determining Malaysia’s export environment in coming months.”
Author: Lindsey Ice, Economist