PMI sees decline to an over 6-year low

The Nikkei Malaysia Manufacturing PMI records a drop to 46.8 in December 2018


Malaysia’s manufacturing sector output dropped to a 6½-year low based on the Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) in December 2018 as challenging operating conditions, lower demand and stagnant employment rates hit producers.

The Nikkei Malaysia Manufacturing PMI dropped to 46.8 in December 2018 from 48.2 a month earlier.

“The latest reading was consistent with a marked deterioration in the health of the manufacturing economy, and meant the sector contracted in each month of the fourth quarter (4Q),” IHS Markit said in a report yesterday.

“Latest Malaysian survey data for the 4Q of 2018 signalled the sharpest deterioration in manufacturing business conditions since the survey began 6½ years ago,” it said.

Production reductions and concerns over demand led companies to use existing stocks to clear backlogs and cut back input purchasing.

“As a result, supply chain pressures alleviated, while purchasing costs increased to a weaker extent. Nonetheless, confidence strengthened amid upbeat sales forecasts for 2019,” the global information provider said.

The sharpest demand contractions hurt local producers during the final month of last year.

Malaysian manufacturers also received unfavourable orders from abroad in December 2018.

Orders from clients in Europe and the Asia-Pacific region were reportedly down, although IHS Markit said the fall in foreign demand was “only mild”.

Concerns about demand led firms to clear their post-production inventories, resulting in stocks trimmed to their greatest level since November 2016.

According to the survey, backlogs of work were reduced, with the rate of depletion accelerating to a near 1½-year peak.

Subdued sales performances also pushed goods producers to scale back on input purchasing, driving buying activities to a third successive month drop and the most since June 2017.

“The deterioration in manufacturing sector health was also fuelled by a stagnation in employment, ending six straight months of job creation,” IHS Markit said, adding that the loss of growth was largely due to resignations.

Operating expenses continued to rise, largely due to unfavourable exchange rate movement and higher raw material costs. However, it said the inflation rate eased to a four-month low.

Despite the unfavourable survey data, business confidence strengthened to a four-month high.

IHS Markit economist Joe Hayes noted that the negative PMI readings indicated that the goods-producing sector is likely to weigh heavily on the final GDP print of 2018.

“Sub-indices provide some deeply concerning trends. Most notably, demand fell markedly, while export orders dropped for the first time since June amid reports of economic weakness across the Asia-Pacific region.

“With production falling, firms cut back stocks of inputs and finished goods, suggesting that prospects for the start of 2019 are likely to remain negative,” Hayes said.

Regionally, the headline Nikkei Asean Manufacturing PMI dipped to 50.3 in December 2018 from 50.4 in November. Excluding the fall in October, this was the slowest expansion since March last year.

“December’s survey of Asean manufacturers indicated that the recent fall in raw materials prices such as crude oil and metals translated into the weakest rise in input costs for over two years,” IHS Markit economist David Owen said.

Of the seven monitored Asean countries, Vietnam, the Philippines, Myanmar, Thailand and Indonesia recorded improvements in operating conditions in December.

Only Malaysia and Singapore saw solid declines with both countries posting lower output for the third successive month.