A slow start to 2019 for manufacturing industry

by DASHVEENJIT KAUR / pic by MUHD AMIN NAHARUL

MALAYSIA’S manufacturing sector posted a sluggish start to 2019, with further reductions in new business and output amid unfavourable domestic demand and overseas sales.

The Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI), compiled by IHS Markit Ltd, registered 47.9 in January, up from 46.8 in December, extending the current period of contraction to four months.

IHS Markit economist Joe Hayes said Malaysia’s manufacturing sector continued to deteriorate in January, and further reductions in new business and output kept the headline index in the negative territory.

“Demand conditions were reportedly unfavourable within the domestic market, but survey data also highlighted fewer sales overseas, with declines attributed to weakness in China, Japan and South Korea,” he said in a statement on Monday.

A reading above 50 indicates an expansion, while points below 50 refer to a contraction.

The survey revealed that export sales also declined, while easing demand pressures enabled firms to reduce backlogs of work.

“Although there was a marginal uptick in employment, costs were cut elsewhere as input buying decreased and stocks were scaled back.

“Elsewhere, survey data indicated falling purchasing prices — enabling firms to raise their own prices more slowly,” it said.

In addition, decreased orderbook volumes weighed on production in January.

“Output was reduced, but the rate of contraction eased since December. In line with lower production requirements, Malaysian manufacturers decreased their purchasing activity.

“The decline was solid overall with panellists indicating that excessive stock levels and a challenging business environment prompted lower input buying,” IHS Markit said, adding that inventories of both preand post-production items were scaled down in January.

The survey data also revealed the first fall in operating expenses for four years in January.

“In fact, the rate of deflation was the strongest since data collection began in July 2012.

“That said, firms continued to raise selling prices, albeit only marginally and at the softest rate since last August,” it added.

IHS Markit said labour costs were mentioned as a source of inflationary pressures.

“Indeed, employment increased in January for the first time since last November,” it said.

The global information provider said the downturn in current output volumes did not impact business confidence in January, the survey showed, with optimism regarding future production rising to its highest level in five months.

“Forecasts of improved demand, new projects and greater sales to overseas clients underpinned positive sentiment in January.

“Looking ahead, the survey indicates that companies are optimistic that output would be higher in 12 months,” it noted.

With survey data also showing pullbacks to inventories, slowing output, price inflation and falling input buying, Hayes concluded that near-term prospects appear highly skewed to the downside for Malaysian goods producers.