• Global factory activity lost further momentum in August
• Malaysia manufacturing downturn moderates in August
• Global manufacturing PMI eases to six-month low
• Delta has added fresh stress but supply chain issues constrain output growth
• Output growth decelerated in several major markets
• Growth continued in many of the largest nations but Asia’s factory activity lost momentum

Malaysia manufacturing downturn moderates in August

The Malaysian manufacturing sector reported a further lack of momentum during August, albeit with the downturn moderating compared to July. The headline IHS Markit Malaysia Manufacturing PMI rose from 40.1 in July to 43.4 in August

August data suggested that output fell among for the fourth month in a row. The pace of the reduction remained marked but was the softest since May. The decline was attributed to a lack of demand and shortages of inputs. New order volumes also fell, though the pace of the decrease was the softest in the current three-month sequence. Furthermore, new export sales also failed to gather momentum, as COVID-19 cases also rose in key external markets, dampening demand. At the same time, there was a renewed fall in employment at Malaysian manufacturing firms in August. Staffing levels have now fallen in four of the last five months. Input costs increased for the fifteenth consecutive month in August, reflecting higher prices for raw materials and logistics. The rate of input price inflation eased to a nine-month low yet remained steep overall. Manufacturers partially passed these higher costs to clients through higher output charges, which rose at a modest pace and extended the current sequence of inflation 15 months. Lengthening average lead times often meant businesses had difficulties sourcing raw materials for production. However, a lack of new orders meant that manufacturers reduced purchases sharply for the third successive month. Encouragingly, business expectations for the coming year improved during the month, as more companies grew optimistic that the worst of the pandemic has passed. Concerns over the spread of the Delta variant nevertheless meant the outlook remains more uncertain than earlier in the year, keeping a lid on the overall degree of optimism.

Outlook. An easing of some COVID-19 lockdown measures helped take some of the pressures off Malaysian manufacturing in August. The IHS Markit Malaysia Manufacturing PMI was up to 43.4 in August 2021 from 40.1 in the prior month. This was the third straight month of contraction in the manufacturing sector but the least in the sequence, reflecting an easing in COVID-19 lockdown measures. IHS Markit said that looking at the historical relationship between official statistics and the PMI, the latest reading is representative of a moderation in manufacturing production and broadly stagnant GDP, as the survey pointed to the ongoing impact of the COVID-19 pandemic on the economy. Meanwhile, as nationwide lockdown came into effect in June 2021, IPI growth slumped to just +1.4% yoy (May: +26.1%). Manufacturing IPI fell by -0.2% yoy, a sharp slowdown from 29.8% yoy growth in May. Exports increased at a slower pace by 5.0% yoy in July (Jun: +27.2%), and marked the smallest gain in eight months as favourable base effects waned amid prolonged COVID-19 containment measures. The reduction in E&E exports in July resulted in a sharp moderation in exports of manufactured goods (Jul: +2.3%; Jun: +25.8%). The E&E exports recorded its first yearly decline and fell sharply at -12.1% yoy (Jun: +14.1%) whilst there was a sharp slowdown in external demand for rubber products (Jul: +13.3%; Jun: +103.5%). Demand for E&E and rubber products will likely remain robust but there could be a near-term impact from the ongoing lockdown and supply bottleneck due to a shortage in semiconductors. We foresee the E&E exports will pick up in the coming months as the slowdown in July would be temporary weakness. With more workers have been vaccinated, the reopening of factories will contribute towards recovery in the E&E and manufacturing exports in the coming month.

Global manufacturing PMI eases to six-month low

The upturn in the global manufacturing sector lost further momentum during August. The J.P. Morgan Global Manufacturing PMI fell to a six-month low of 54.1 in August. This nonetheless extended the current sequence of improving operating conditions to 14 months. August PMI data also indicated that growth continued across the consumer, intermediate and investment goods industries. However, rates of increase in output, new orders and employment eased in all three sectors. Manufacturing production and new orders both rose for the fourteenth successive month in August. However, the rate of expansion in output eased to its weakest during that sequence. Efforts to raise production further were constrained by supply chain issues and, in some cases, shortages of labour and skills. Growth of new export business eased to a seven-month low in August. Rates of increase slowed at intermediate and investment goods producers, while a decrease was seen in the consumer goods sector. Employment rose for the tenth month running in August, with the rate of expansion remaining solid. Companies were encouraged to increase staffing due to rising demand, higher backlogs of work and robust business optimism. Although confidence dipped to a ten-month low, it remained above its long-run average and indicated that manufacturers still expect production to rise over the coming 12 months.

Source: BIMB Securities Research - 2 Sept 2021