• Malaysia manufacturing PMI expands fastest since 2012 in April

• The global manufacturing sector accelerates in April

• Gradual unwinding of COVID-19 restrictions is driving an accelerated upturn in manufacturing activity

Malaysia manufacturing PMI expands fastest since 2012 in April

The IHS Markit Malaysia Manufacturing PMI rose to 53.9 in April from 49.9 in March, indicating a solid improvement in the health of the manufacturing sector. The expansion was the strongest recorded since the survey began in July 2012. April data suggested that output grew for the first time in nine months. The pace of growth was the strongest recorded since June 2020.

Firms commonly attributed the renewed growth to improved market demand leading to increased orders. New order volumes also returned to expansion territory in April, the first rise since September 2018. The pace of the increase was solid, and the quickest in exactly seven years, as manufacturers noted stronger client confidence, notably for new products. Furthermore, new export sales increased for the first time since November 2019, as demand in key markets across Asia and the US recovered. At the same time, there was a renewed fall in employment at Malaysian manufacturing firms in April. Though only marginal, staffing levels have now fallen in 12 of the last 13 months, with manufacturers noting a lack of foreign work permits being issued due to COVID-19 restrictions. As new orders returned to growth, firms commented that pressure had continued to build on capacity, as the amount of outstanding business increased for the second successive month. Input costs increased for the eleventh consecutive month in April, reflecting higher prices of raw materials and logistics. The rate of input price inflation accelerated to the fastest in just over four years, and was rapid overall. Manufacturers partially passed these higher costs to clients through higher output charges, which rose at a marked pace and extended the current sequence of inflation to 11 months. Looking ahead, Malaysian manufacturers were increasingly optimistic regarding the year ahead outlook for output. Expectations reached the highest level since August 2019, underpinned by hopes that a successful vaccination programme would induce a broader economic recovery.

Outlook. Malaysia manufacturing PMI rose to 53.9 in April from 49.9 in March. The Malaysian manufacturing sector reported a strong improvement in operating conditions during April. Looking at the historical relationship between the PMI and official statistics, the latest reading is representative of a solid upturn in industrial production and GDP, as the survey pointed to a steady recovery from the impacts of the pandemic. Meanwhile, exports jumped by 31.0% yoy in March. It not only extended the double-digit growth in February of 17.6%, but also surpassed the RM100bn mark, a level not seen since July 2017. For the 1Q21, exports increased 18.2% yoy. A low base, improved global economic and trade activities, a semiconductor up-cycle and firm commodity prices were the main drivers of exports. Despite the global supply chain disruption, global trade continues to recover, bolstered by the rollout of the COVID-19 vaccine and supported by significant fiscal stimuli. The technology upcycles and acceleration in digital transformation will continue to drive demand for Malaysia’s E&E products, mainly semiconductors. The strong exports and imports data in 1Q21 would reaffirm our view that the recovery in exports of goods will continue for the rest of 2Q21, mainly due to the low base effect and gradual recovery in global demand. The improving global economic backdrop, uptick in semiconductor demand, and rising oil prices are strong drivers to lift Malaysia’s export momentum in 2021. Going forward, we expect exports growth to be supported by recovery in demand for manufacturing goods.

The global manufacturing sector accelerates in April

The global manufacturing upturn strengthened at the start of the second quarter. Production rose at the quickest pace in over a decade, as inflows of new work improved to the greatest extent in nearly 11 years. The J.P. Morgan Global Manufacturing PMI rose to 55.8 in April, its best reading since April 2010. Underpinning the latest increase in output was a further substantial improvement in intakes of new work. Total new orders and new export business both rose at the quickest rates since May 2010. The outlook for the global manufacturing sector also strengthened, with optimism about future output levels remaining among the best signalled in the series history. Along with the rising levels of output and new orders and longer supplier delivery times, the level of the headline PMI was also positively influenced by a mild increase in stocks of purchases and stronger jobs growth. By sector, growth was registered across the consumer (two-month low), intermediate (four-month high) and investment (129-month high) goods industries. Cost inflationary pressures remained strong at the start of the second quarter, with average producer prices rising to the greatest extent in over a decade. Manufacturers passed part of this increase on to customers in the form of higher selling prices. Subsequently, output charges rose at the quickest pace since data on this price measure were first compiled in October 2009.

Source: BIMB Securities Research - 4 May 2021