Malaysia’s Nikkei Manufacturing Purchasing Managers Index (PMI) eased further in the month of June to 47.8 from 48.8 in May. It has been in the contraction region for the 9th consecutive month. Demand condition is still soft while fewer new orders from overseas clients weighed on production volumes.

The current PMI data suggests that the business operating environment remains a challenge, especially on the export market segment. Nonetheless, businesses are beginning to show positive forward-looking outlook. Despite the PMI being in the contraction region, we believe the overall economic growth will still be above 4% based on historical comparison. Looking at the 1Q2019 average reading of 47.6, 1Q2019 GDP grew 4.5%. And given that the 2Q2019 average PMI is higher at 48.7, we can logically expect 2Q2019 GDP to possibly expand between 4.5% and 5.0%.

• Malaysia’s Nikkei Manufacturing Purchasing Managers Index (PMI) eased further in the month of June to 47.8 from 48.8 in May. It has been in the contraction region for the 9th consecutive month. Demand condition is still soft while fewer new orders from overseas clients weighed on production volumes. The demarcation between expansionary and contraction is 50.

• The softening trend of the PMI data falls in tandem with Asean’s Nikkei PMI which slid into the contraction region in June, reporting 49.7 from May’s reading of 50.6. Asean’s slowdown in June could be due to slower numbers reported in countries like Thailand (50.6 In June from 50.7); Indonesia (50.6 in June from 51.6); and Singapore (42.9 in June from 49.9) while being comforted by Myanmar (53.0 in June from 52.4); Vietnam (52.5 in June from 52.0); and the Philippines (51.3 in June from 51.2).

• The current PMI data suggests that the business operating environment remains a challenge, especially on the export market segment. Nonetheless, businesses are beginning to show positive forward-looking outlook. Despite the ongoing global uncertainties, especially on trade tensions, we concur with the PMI findings that there are a growing number of firms stepping up their marketing and sales efforts. Firms are also adopting a more stable approach on the employment front.

• Despite the PMI being in the contraction region, we believe the overall economic growth will still be above 4% based on historical comparison. Looking at the 1Q2019 average PMI reading of 47.6, 1Q2019 GDP grew 4.5%. And given that the 2Q2019 average PMI is higher at 48.7, we logically expect 2Q2019 GDP to possibly expand between 4.5% and 5.0%.

Source: AmInvest Research - 2 Jul 2019