By ASILA JALIL / pic by TMR FILE PIX 

Malaysia’s manufacturing sector continued to improve in July but concerns still linger despite the recovery. 

The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index  (PMI) – an indicator of the country’s manufacturing performance – posted a reading of 50 in July.

Although it posted a marginal decline from 51 recorded in June, the reading is still well above the average of 49. 

IHS Markit said after rising at a “joint-record pace” in June, output continued to expand in the latest survey period following a much improved trend in new orders since the downturn in April. 

The ongoing effects of the Covid-19 pandemic meant that firms continued to operate below capacity and therefore expressed further caution around hiring, it said, adding output prices saw an increase in the beginning of the third quarter.  

Manufacturing production rose for the second month in July and respondents linked higher output to signs of an improving trend in new orders following an easing of the movement restrictions. 

“A number of firms expect market demand to strengthen over the coming year, supporting overall confidence in the 12-month outlook for production. Sentiment was down only slightly from that seen in June,” it said. 

Input costs also increased in July, rising for the second month and at the fastest pace since October 2018.

It said respondents generally attributed higher input prices to supply shortages for raw materials. 

AmBank Group chief economist and head of research Dr Anthony Dass said the index which currently sits at the expansionary level, could suggest a ‘V’ shaped recovery in the country’s economy but there should also be some level of cautiousness despite the expansion. 

He said exports remain weak and downside risk continues to prevail due to ongoing uncertainties on the global front. 

“Current local manufacturers optimism comes mainly from backlogged orders. While this could keep business momentum going for a period of time, such recovery can become unsustainable unless firm demand kicks in. 

“For that to happen, consumer confidence needs to improve as it will help spur spending and that would mean the need for a more stable job market and also on salaries and wages,” he told The Malaysian Reserve yesterday. 

He added the potential impact on exports and domestic activities from a second wave of infections still remains unclear as the severity is dependent on the  containment measures that will be taken to curb the spread. 

IHS Markit chief business economist Chris Williamson said the manufacturing sector expanded for a second consecutive month albeit with the rebound in factory output losing some of its momentum due to some settling down of production after returns to work in May and June. 

He noted new order growth has recovered to its long-run average although it remained somewhat subdued mainly due to a further deterioration of demand in export markets. 

“It will be important for demand to rise further in coming months to encourage more hiring and boost confidence. 

“July saw job numbers fall at a slightly increased rate as firms grew slightly less optimistic about the year ahead, underscoring how producers are likely to remain cost conscious and err towards risk aversion until the outlook for demand beyond the initial rebound from COVID-19 lockdowns becomes clearer,” he said in the note.