Manufacturing PMI rises on easing inflation, higher domestic demand

By SHAHEERA AZNAM SHAH / Pic By TMR

The improved local manufacturing condition in August after seven months of performing below the positive index was supported by easing inflationary pressure and stronger domestic demand, said a local research house.

MIDF Amanah Investment Bank Bhd in its research report stated that the tax holiday period, which began in June, and stable retail fuel prices for RON95 and diesel were the prominent factors in slowing down Malaysia’s inflationary pressure.

“In July, the headline inflation stood at 0.9%, which was slightly higher than the 3.5-year low of 0.8% in the previous month.

“The core inflation for the first time nosedived to deflationary zone at 0.2%,” the report read.

In August, the Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI), which measures the economic health for the manufacturing sector, rose to 51.2 from 49.7 in July.

The index reading above 50 indicates an overall increase, while a reading below 50 indicates an overall contraction.

MIDF said the growth defined a new pattern for the local manufacturing sector and derived mainly from domestic demand.

Moving forward, MIDF expects the industrial activities in Malaysia to moderate amid the global trade performance and escalating trade war.

Referring to the major economies’ PMI figures, business confidence in the US, Euro- pean Union (EU) and China are moderating.

“The US’ manufacturing PMI for August 2018 registered a nine-month low, while the EU’s noted a 21-month low and China fell to a 14-month low,” it said.

According to a report by IHS Markit Ltd, a London-based information provider which compiled the PMI index, the August data signalled an improvement in the Malaysian manufacturing condition for the first time in seven months while being under “a new order”.

“More projects and strong underlying demand were the key factors cited by the panel- lists behind the latest upturn.

“Reflecting growth in new orders, backlogs of work rose for the first time in 15 months, albeit marginally. Subsequently, firms raised their staffing levels for the third month in succession during August,” it said in the report.

IHS Markit economist Aashna Dodhia said the PMI price indicators signalled the easing inflationary pressures which may have played a key role in boosting customers’ purchasing power.

“The output charge inflation was only fractional as input cost inflation moderated

to the weakest since February 2015, reflective of the abolition of the Goods and Services Tax in June.

“Malaysian manufacturing companies raised their purchasing activity for the first time in nine months.

“The upturn was reportedly due to stronger demand as well as stock-building initiatives undertaken by manufacturers ahead of the re-implementation of the Sales and Services Tax,” she said.

She added that the business sentiment for the 12-month outlook will strengthen to a four-month high as confidence rooted in positive fore- casts of sales and an expected improvement in underlying demand.