No need to panic over PMI numbers, say economists


The sharp drop in Malaysia’s Nikkei Manufacturing Purchasing Managers’ Index (PMI) for June does not reflect the country’s overall economy, said economists.

Despite falling to a record low of 46.9 in June on lower output and a decline in new orders, Malaysia’s manufacturing build-up in the second-quarter (2Q) has been moving in the opposite direction, they said.

Maybank Investment Bank Bhd chief economist Suhaimi Ilias said the five-year index does not typically “jive” with indicators published by the Department of Statistics — which he classified as hard data.

“I think the manufacturing growth has been fair, as far as Malaysia is concerned. Recent numbers do not indicate any kind of weakness. In fact, it looks to be building up in the 2Q.

“In April, for example, the manufacturing index was up 6.7% from 5.9% in March, but the PMI report does not show that. There is a dichotomy there and I believe it (the PMI) is not representative of the whole manufacturing sector in the economy,” Suhaimi told The Malaysian Reserve (TMR) when contacted yesterday.

According to the PMI data compiled by IHS Markit Ltd, the poor results in June pointed to worsening business conditions as employment was broadly stagnant, while purchasing activity and input stocks waned at survey-record rates.

Suhaimi said Malaysia’s PMI, which has largely been below the headway 50-point level, should translate into economic contraction as the index suggests. However, this has not been the case.

“If you look at Malaysia’s PMI, it has largely been below the 50-mark level — which basically means there is no growth — when in fact, we are seeing the opposite taking place. If there is a divergence between the two, I would refer to the hard data.

“The PMI is essentially a survey so it may be affected by sentiments and perception. The actual numbers suggest that it is not impacting the industry materially, especially on global output,” Suhaimi said.

Other economists contacted by TMR also shared similar views.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the US Institute for Supply Management (ISM) Manufacturing Index gave a better gauge to Malaysia’s economic performance — particularly with regard to exports.

“Thus far, we have seen Malaysia’s export growth continue to record double-digit growth between December 2016 and April 2017, while Malaysia’s PMI was mostly below 50 points during that time.

“Perhaps, one might need to relook at indicators which can best describe the performance of that particular economy,” he said.

Mohd Afzanizam added that the recent rise in the ISM Manufacturing Index to 57.8 points in June from 54.9 points in May, indicated that the external sector is expected to remain supportive to the over- all growth in the 3Q of 2017.

Meanwhile, IHS Markit Asia-Pacific chief economist Rajiv Biswas said the overall positive momentum in Malaysia’s diversified sectors signal a positive outlook for the export sector in the second-half of 2017 (2H17).

“IHS Markit forecasts that Malaysia’s gross domestic product (GDP) growth will strengthen from 4.2% in 2016 to 4.9% in 2017, helped by stronger exports, resilient private consumption spending and major infrastructure projects sup- porting construction sector activity,” he said.

He said the country’s GDP growth will largely hinge on major infrastructure developments such as the 1,076km Pan Borneo Highway, Mass Rapid Transit Line 2, and Petroliam Nasional Bhd’s RM60 billion Refinery and Petrochemical Integrated Development project.