Nation’s PMI continued to slip below the 50-point level from 49.9 in February to 49.5 in March

By ALIFAH ZAINUDDIN / Graphic By TMR

Slower rises in output and new order volumes saw manufacturing operating conditions across Asean hit a snag at the end of the first quarter, based on Nikkei Asean Manufacturing Purchasing Managers’ Index (PMI).

The headline reading for the region slipped from 50.7 in February to 50.1 in March after data pointed to mixed manufacturing sector performances across the seven monitored Asean nations. Only four countries showed improvement in business conditions, while others, including Malaysia, were the decliners.

Malaysia’s PMI continued to slip below the 50-point level from 49.9 in February to 49.5 in March.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the drop could be due to bearish sentiments among investors as uncertainties of a possible escalation of trade protectionist policies in the US continue to pose risks.

“At best, we believe manufacturers are very mindful on their production activities. This means clearing up their existing stocks would be their main priority. This could lead to slower production activities in the manufacturing space,” he told The Malaysian Reserve.

However, Mohd Afzanizam said domestic demand is expected to support economic growth in the event of moderation in export-oriented industries. “The implementation of infrastructure projects, especially in rail-related industries, could spur activities in the construction segment.

“Financing activities in the banking industry also remain decent with total loans growing to 4.5% in February from 4.2%, while stability in the labour market ensures steady flows of household income which is needed to support private consumption.

“As such, Bank Negara Malaysia’s growth target of 5.5% to 6% for 2018 is achievable,” he said.

IHS Markit Ltd, which compiled the survey, said central to the downward movement in the index was a fall in manufacturing production for the first time in eight months.

“Panellists widely associated falls in output with lower orderbook volumes. That said, the rate of contraction was marginal. The poor performance in the sector was also driven by a decline in new business placed at Malaysian manufacturing firms,” it said in a statement.

Meanwhile, IHS Markit principal economist Bernard Aw said forward-looking survey indicators pointed to slower growth for the region in the coming months.

“Both output and new orders grew at slower rates while employment was broadly stagnant. Firms barely raised purchasing activity, preferring to tap into current inventories,” he said.

Aw also noted that although business confidence remained positive, it had retracted to a new low since the survey’s inception nearly six years ago.

“Another area of concern is rising input costs. Asean manufacturers continued to face marked increases in input costs. However, subdued demand saw limited growth of selling prices, suggesting that companies have struggled to pass on greater costs to customers, which puts pressure on profit margins,” he said.