• Deterioration in Malaysia’s manufacturing conditions slows in June
• Global Manufacturing PMI at 11-month low in June
• ISM manufacturing PMI shows US economy widening lead over rest of world
• Eurozone manufacturing PMI falls to 18-month low
• UK manufacturing sector remains subdued
• China manufacturing activity eases
• Japan's manufacturing sector continues to improve moderately
• ASEAN manufacturing growth eases slightly

Deterioration in Malaysia’s manufacturing conditions slows in June

The manufacturing sector in Malaysia continued to contract in June, albeit at a slower rate with a manufacturing PMI score of 49.5, up from 47.6 in May. Output declined further in June, but at a slower pace due to unfavourable economic conditions. In line with the trend of output, new business declined for the fifth consecutive month in June and was linked to lacklustre demand. However, the rate of decline moderated to the slowest since March. Amid reports of weaker demand from international markets, new export orders declined at the end of the second quarter. That said, the latest downturn was the slowest since February. Despite a sustained period of decline in output and new orders, surprisingly, firms raised their staffing levels during June, but the rate of job creation was only marginal. On the price front, firms faced higher input costs during June, thereby stretching the current period of inflation to 41 months. There were some reports that the abolition of the Goods and Services Tax (GST) alleviated pressure on firms’ costs burdens. Subsequently, input cost inflation moderated to the slowest since March 2015. Looking ahead, Malaysian manufacturing firms retained positive forecasts for output in the next 12 months. However, the Future Output Index fell to the lowest since last October, indicating weaker sentiment.

Outlook. Latest manufacturing PMI data highlighted that business conditions across Malaysia’s manufacturing sector deteriorated at a slower pace in June. Meanwhile, the Industrial Production Index (IPI) recorded 4.6% (Mar: 3.1%) gain in the month of April with manufacturing sector output which accounted for 68.3% of total IPI accelerated from 4.1% in March to 5.3% in April. Exports bumped up 14.0% yoy in April from 2.2% growth recorded in the preceding month. Exports of manufactured goods increased by 16.8% yoy in April (Mar: 3.7%) and mainly supported by exports in the E&E segment which grew 21.2% (Mar: 8.8%) and accounted for 37.8% of total exports. The latest data set reinvigorate our conviction that Malaysia’s manufacturing sector will continue to provide support to the trade performance and hence the overall economic growth for 2018.

Source: BIMB Securities Research - 3 Jul 2018