• Malaysia’s manufacturing sector contracts slightly

• Global manufacturing PMI at lowest level since October 2012

• US manufacturing activity continued to slow in July

• Eurozone manufacturing activity worst in almost seven years

• UK manufacturing PMI remains at six-and-a-half-year low in July

• China’s manufacturing PMI improves in July

• Japan’s manufacturing PMI inches higher in July

• ASEAN manufacturing PMI at two-year low in July

Malaysia’s manufacturing sector contracts slightly

The manufacturing sector in Malaysia continued to contract in July as the manufacturing PMI falling marginally from 47.8 in June to 47.6. Softer demand has put further pressure on production and deterred firms from increasing their work forces. Difficulties in retaining and hiring staff were also mentioned as a factor behind the weaker job’s numbers. At the same time, buying activity were tapered, as has been the case since last October, while stocks of inputs and semimanufactured items were also pared back. Meanwhile, export sales rose for the first time since April, albeit only marginal, with the US, Japan and Turkey mentioned as particular sources of higher export demand. The rise in exports helped keep the seasonally adjusted new orders index above the weak levels seen at the start of the year, but overall demand conditions remained challenging. Elsewhere, input prices continued to rise, propped up by unfavorable exchange rate variation as well as reports of increased charges from suppliers and greater utility costs. However, when looking towards the coming 12 months, Malaysian manufacturers anticipate order book volumes to pick up and support production growth. Business confidence in Malaysia has been remarkably resilient in the face of external headwinds facing the sector, though the July survey saw optimism pull back from June's 68-month peak.

Outlook. Malaysia’s manufacturing Purchasing Managers’ Index (PMI) fell to a four monthlow of 47.6 in July 2019 from 47.8 in June. The country’s PMI has remained below the 50- level mark for the tenth straight month. According to Markit, the pull-back in the PMI from the higher levels seen early in the second quarter comes at a time of weakening global economic growth and rising worldwide geopolitical concerns. It is therefore no surprise to see Malaysia’s manufacturers reporting tougher operating conditions in this context. Analysis of comparable historical official data on Malaysian manufacturing suggests that, at current levels, the survey’s output index signals annual production growth of approximately 4.5%, representing a notable improvement compared to June (3.0%). Meanwhile, IPI expanded steadily by 4.0% yoy in May. The IPI performance is in tandem with the rebound of Malaysia’s external trade in May. Total exports continued its positive growth at 2.5% yoy in May (Apr: 1.1%), highest in 4-month and remaining on an uptrend for the third successive month. The combined April-May IPI and export growth will be a good guide to 2Q19 GDP growth, which has shaped up to deliver a better quarter for GDP growth than the first. Nevertheless, trade war factor remains as downside risk. Markit’s survey data also remain broadly indicative of GDP growing at annual rates of 4.5%.

Global manufacturing PMI at lowest level since October 2012

PMI surveys indicated that the global manufacturing downturn deepened in July, causing greater job losses and reducing pricing power, as the downturn widened to encompass more countries. The headline JPMorgan Global Manufacturing PMI fell from 49.4 in June to 49.3 in July, its lowest since October 2012 and indicating a third successive month of deteriorating business conditions. The number of countries now in decline has increased to 19 out of 30 covered by IHS Markit's manufacturing PMIs which, at 63%, is the highest proportion since August 2012.

Source: BIMB Securities Research - 2 Aug 2019