The latest reading signals a modest deterioration in the health of the sector moving into 4Q

by NUR HAZIQAH A MALEK / pic credit: ihsmarkit.com

MALAYSIA’S manufacturing sector contracted for the fourth month in October as renewed Covid-19 restrictions hurt demand and sentiment.

The IHS Markit Purchasing Managers’ Index (PMI) dipped to 48.5 in October from 49 in September, staying below the 50 mark that separates expansion from contraction.

IHS Markit chief business economist Chris Williamson (picture) said the rebound seen from the second-quarter (2Q) slump is showing signs of instability moving into 4Q.

“Rising Covid-19 infection rates and worries regarding further lockdown precautions, both at home and in export markets, are hitting orderbooks and denting business confidence.

“Optimism about the year ahead fell sharply in October, and the decline in export sales gathered pace to result in a weakened orderbook situation,” he said.

He added that inflationary pressures remain benign, despite supply shortages persisting and companies pricing aggressively to win sales.

“Cost control remained in focus, though it was encouraging to see job losses moderate again during October,” Williamson said.

The latest reading signalled a modest deterioration in the health of the sector, although it was much less marked than seen at the height of the pandemic.

While the historical relationship between the PMI and official data suggests GDP continued to rise at the start of 4Q, manufacturing output looks to be stagnating amid a resurgence of Covid-19 cases.

New export orders also fell, and to a greater extent than total new business amid ongoing disruption to international demand caused by the pandemic. Weaker new order inflows also meant that firms were able to deplete their backlogs of work.

Meanwhile, the lack of pressure on capacity led to a further fall in employment, although the job cuts have softened since August.

The report noted firms expressed a reluctance to raise purchasing and hold inventories amid the fragile demand environment.

“Stocks of both purchases and finished goods were consequently depleted during October. Despite falling demand for inputs, manufacturers continued to report supply chain delays,” it said.

Subsequently, suppliers’ delivery time lengthened at the start of 4Q due to restrictions, while material shortages contributed to an increase in input costs.

“The rate of output price inflation also softened, and was only marginal, as efforts to pass on higher input costs to customers were undermined by the offering of discounts to try to secure new orders.

“Charges have risen modestly during the past five months,” it said.

Although manufacturers remain confident that output will increase, optimism did fall from September’s nine-month high amid rising cases and the extension of restrictions.

Respondents that predicted an increase in output hoped that market demand would recover over the next 12 months.