The manufacturing PMI fell slightly in March to 48.4 from 48.5 in February, performing relatively better than our Asean peers, somewhat suggesting that we are less impacted compared to our neighbours. Nonetheless, the details of our PMI manufacturing showed operating conditions are hurt by the pandemic virus, coming from both the supply and demand sides.

With the public health measures remaining intact and open ended, the downside risk on our manufacturing activities is more likely to be felt from April onwards. The impact will be felt in both the domestic and external fronts. How long the adverse impact on manufacturing will last depends on the duration of the movement control order (MCO). On that note, the 2Q performance will likely be much worse off than that in 1Q2020.

• Compared to the Asean region, the PMI manufacturing data suggests that Malaysia is less impacted from the coronavirus pandemic that led to the collapse of supply and demand.

• Our manufacturing PMI, which has been in the contraction region, fell slightly in March to 48.4 from 48.5 in February, as compared to the Asean region, which registered a drop at 43.4 from 50.2 in February, the lowest in almost eight years and indicative of a marked downturn. A reading above 50 indicates an overall increase compared to the previous month while a reading below 50 shows an overall decrease.

• However, looking at several key sub-indices in our manufacturing PMI, it showed cracks in the operating environment, adversely impacted from the recent movement control order (MCO) which commenced on 18 March. It led to output falling to the lowest since June 2016 while new orders tumbled to a record low since the survey began in July 2012.

• Likewise, external demand dropped markedly in line with regional players, reflecting the negative demand shock from China. On the supply side, it was affected by the shortages of key raw materials and components due to delayed shipments and supply disruptions.

• With the public health measures remaining intact and open ended, the downside risk on our manufacturing activities is more likely to be felt from April onwards. Impact will be felt in both the domestic and external fronts.

• How long the adverse impact on manufacturing will last depends on the duration of the MCO. Also, it remains to be seen how effective the monetary and fiscal stimulus measures will be, in particular in supporting SMEs, which include micro businesses as well as consumers, in particular those who have lost their daily wages and monthly income.

• What we are experiencing today is the issue of demand and supply simultaneously. It is unprecedented, and unlike the 2008 global financial crisis. Today, both manufacturing and services are being hurt by the virus impact. On that note, the 2Q performance will likely be much worse off than that in 1Q2020.

Source: AmInvest Research - 2 Apr 2020