Businesses could be taking a wait-and-see approach due to the upcoming general election, says analyst

By ALIFAH ZAINUDDIN / Pic By MUHD AMIN NAHARUL

Malaysia’s manufacturing sector continued to deteriorate in April as lower output and subdued demand led to firms reducing their purchasing activities and pre-production inventories.

The headline Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) fell to a six-month low of 48.6, its third successive decline from 50.5 in January. This was indicative of a modest deterioration in the health of the sector that was at its strongest in October last year.

Australia and New Zealand Banking Group Ltd head of Asia research Khoon Goh said the PMI data suggests there will be a slowdown in growth in the second quarter.

“Businesses could be taking a wait-and-see approach due to the upcoming general election, leading to the decline in new orders and output.

“However, this will likely be temporary, as respondents’ expectations of future output have risen to their strongest level since October 2013. This suggests that most expect demand to improve once the elections are out of the way,” he told The Malaysian Reserve.

Business sentiment towards the 12-month outlook for output was at the strongest level since October 2013 as firms were upbeat about their prospects.

Despite ongoing spare capacity, local manufacturers raised their payroll numbers in April, albeit marginally.

IHS Markit Ltd economist Aashna Dodhia said the PMI decline reflected lacklustre demand from both domestic and international markets. She said total new orders and new export orders contracted at the fastest rates in July 2017 and December 2016 respectively.

“The recent build-up of inflationary pressures faced by manufacturers softened in April, with input cost inflation broadly in line with the historical average.

“On the other hand, output charge inflation was solid and the fastest since last September,” Aashna added.

Malaysia’s manufacturing sector faced higher input costs for the 39th consecutive month in April. The rate of inflation was also sharp and broadly in line with the historical average.

This led to higher output prices during the month, thereby extending the current inflation period to 18 months.

Reports suggest that firms raised their selling prices to pass on the increased input costs to consumers.

Reflecting weak demand conditions, purchasing activity fell across the manufacturing sector for the fifth consecutive month in April. The contraction quickened to a solid pace that was the fastest since the end of 2017. Both pre-and post-production inventories fell over the latest survey period.

Meanwhile, the future output index climbed to its highest since October 2013. Improved business confidence is expected to boost demand conditions and new projects in the upcoming months.