May PMI signals steeper deterioration

The decline is due to weak demand and export orders, according to the Nikkei Malaysia Manufacturing PMI


The manufacturing sector in Malaysia continued to contract at a faster rate in May with an 11-month low manufacturing Purchasing Managers’ Index (PMI) score.

The headline Nikkei Malaysia Manufacturing PMI fell from 48.6 in April to 47.6 in May, thereby stretching the current period of decline to four months.

The move was beneath the boom-or-bust line of 50 that separates expansion from contraction.

The report stated that the decline was due to weak demand and export orders, which makes Malaysia the only country to signal a decline in the health of its manufacturing sector in the region.

“Malaysia was the only country to signal a decline in the health of its manufacturing sector for nearly a year,” it stated.

Principal economist at IHS Markit Bernard Aw said all other nations except Malaysia signalled an improvement in the health of their respective manufacturing sectors throughout the month of May.

“This was predominantly driven by the sharpest fall in new business since December 2016,” he added.

IHS Markit is the firm that compiles and releases the data on the PMI performances.

“The upturn remained marred by rising costs as increased prices for raw materials — especially oil and metal — as well as global shortages continued to push firms’ costs higher,” Bernard added.

He claims that lacklustre demand was cited by panellists as the main reason behind the decline in new business.

“Meanwhile, new export orders fell for the fourth successive month in May — and with that being said, the rate of decline moderated to the weakest in three months,” it added.

Output across the manufacturing sector in the country declined in May. According to IHS Markit economist Aashna Dodhia, the latest survey data showed Malaysian manufacturing conditions deteriorated at the fastest pace since June 2017.

“PMI data suggested that weak demand emanated from both the domestic, as well as foreign markets.

“In response to lower output requirements, firms were discouraged from engaging in input buying and job recruitment,” she said.

Dodhia said manufacturers felt some respite around inflationary pressures, with input cost inflation easing to the weakest since October 2016.

She noted that it has been the case since February 2015 when Malaysian manufacturing companies faced higher input prices.

“While demand seem to be improving, it remains fairly modest, which meant companies faced constraints on passing on these increased costs to customers.

“As a result, profit margins remained under pressure,” Dodhia said.

The survey also indicated that business sentiment remained above the historical average.

“PMI found that the manufacturers hold strong projections for output in the next 12 months, in hopes that the new government will spur businesses in the year head,” she said.

Regionally, the Asean manufacturing growth gained further momentum midway through the second quarter, with the PMI reaching the highest level since July 2014.

May data showed six of the seven countries covered by the survey indicating an improvement in manufacturing conditions, up from five in April.

Vietnam overtook Myanmar to lead the Asean manufacturing PMI rankings, as growth in its manufacturing sector picked up in May.

The Philippines also followed close behind after registering a faster improvement in operating conditions.