Production grows as pandemic restrictions lifted

PMI in the 4Q was the strongest quarterly performance recorded since the survey began in July 2012, says economist


THE manufacturing sector reports an increase in growth momentum at the end of 2021 as operating conditions improved at the quickest rate since April.

According to an IHS Markit’s Malaysia Manufacturing Purchasing Managers’ Index (PMI) report, a composite single-figure indicator of manufacturing performance-rose from 52.3 in November to 52.8 in December, indicating a stronger improvement in the health of the sector.

This is because the latest reading is representative of a solid expansion in manufacturing production and GDP, as the survey pointed to a broad recovery from the impact of Covid-19.

However, businesses continued to report severely disrupted supply chains, with material shortages and delivery delays remaining widespread, which contributed to a further steep increase in input costs.

Commenting on the latest survey results, IHS Markit economist Usamah Bhatti said the average reading of the headline PMI in the fourth quarter was the strongest quarterly performance recorded since the survey began in July 2012, as output and new order growth reached eight-month highs, respectively.

“Operating conditions remain tough nonetheless, with supply chain delays and material labour shortages widely reported across the sector,” he added.

He added that business expectations for the coming year remained strong overall, as a fifth of companies reported optimism that the worst of the pandemic had passed.

“That said, the degree of optimism eased from November as the outlook remained relatively clouded due to uncertainty regarding the duration of supply chain disruptions, raw material shortages, and further disruptions caused by new variants of Covid-19,” Usamah added.

The report also noted that new order volumes also increased at the end of the year, with the rate of growth reaching an eight-month high as firms noted that stronger client confidence had boosted demand in both domestic and external markets.

“Concurrently, new export sales returned to expansion territory in December, as stronger demand in the US and China contributed to a fractional rise in new business from abroad,” the report reads, adding that the inflation rate quickened to a seven-month high and was marked overall, and the lengthening average lead times often meant that businesses had difficulties sourcing raw materials for production.

However, stronger new order growth meant that manufacturers raised purchasing activity at a solid pace to meet demand. With vendor performance deteriorating further, stocks of raw materials increased for the second successive month.

“Looking ahead, Malaysian manufacturers remained optimistic regarding the year-ahead outlook for output.

“Expectations eased slightly from November, yet were strong overall and above the long-run average. Optimism was underpinned by hopes that the pandemic would subside and induce a broad recovery in supply chains and the economy,” the report concludes.