Local manufacturers suffer sharpest PMI decline

The headline index’s momentum in January down from a 15-month high of 50 in December to 48.8 in January


MALAYSIA’S manufacturing sector recorded the steepest decline in January among Asean states as operation conditions across the bloc continued to deteriorate for the eighth month running last month, based on data from the IHS Markit Purchasing Managers’ Index (PMI).

The country lost some momentum in January with the headline index down from a 15-month high of 50 in December to 48.8 in January — the lowest since September last year. A key factor behind the moderation was export orders, which declined during January for the first time in three months.

The decline, however, was the softest since the downturn began in June 2019, with output rising for the first time in seven months amid a slew of increase in new business.

Commenting on the latest survey results, IHS Markit Ltd chief business economist Chris Williamson said Malaysia’s manufacturers are starting the year on a softer footing, having ended 2019 with their best performance in over a year.

He said much of the renewed weakness was a function of deteriorating external demand, with export orders under further pressure as a result of slower growth in key trading partners.

“Even after allowing for usual seasonal variations, business trends can be volatile around the year-end, so we don’t recommend reading too much into one month’s data. More importantly, the past four months have seen the strongest PMI readings since 2018, which correspond with an easing of global trade tensions in recent months.

“Therefore, trade war developments will likely play a major role in determining Malaysia’s export environment in the coming months. Our forecasts are for global growth to pick up pace as we head through 2020, in part due to the Phase 1 deal between the US and China helping boost trade, but we could see markets grow more nervous again if the US ratchets up its focus on Europe.

“The Wuhan coronavirus also poses a key downside risk to the near-term Asia-Pacific economic outlook, albeit growth momentum could recover quickly if the epidemic ends rapidly,” he said.

Overall, the Asean manufacturing sector remained in a subdued state at the start of 2020. Despite some positive signs, further momentum is required for the sector to return to growth.

The Asean headline PMI rose from 49.7 in December to 49.8 in January, signalling further deterioration in the health of the Asean manufacturing sector.

Myanmar registered the best performance of the seven monitored countries, as has been the case over the past 12 months. Myanmar’s headline index at 52.7 signalled a solid improvement in operating conditions, following a slight loss of momentum in December.

The Philippines also recorded an expansion at 52.1, as the headline figure climbed to the highest since January 2019 to signal a moderate improvement in the health of the manufacturing sector, driven by solid new order growth.

Meanwhile, Vietnam saw a third successive monthly improvement in operating conditions in January at 50.6. The headline figure was indicative of only marginal growth, however, and among the lowest recorded in the past six years.

By comparison, manufacturing conditions in Thailand were broadly stagnant at the start of the year, with the headline index slipping to 49.9 in January.

Elsewhere, Indonesia’s downturn continued for the seventh month running, although the headline figure (49.3) signalled only a marginal rate of decline.

Singapore also recorded a further deterioration in operating conditions during January at 49.2, although the pace of decline was the softest in the current 18-month sequence, signalling only a mild deterioration in the health of the sector.

On the price front, inflationary pressures remained historically muted. Despite rising at the fastest rate since last July, cost burdens faced by Asean goods producers increased only mildly. Selling prices also rose, but the rate of charge inflation was only fractional.

Encouragingly, Asean manufacturing firms remained confident output would increase over the coming year. Expectations strengthened to a seven-month high, although remained muted in the context of the series long-run average.