Malaysia manufacturing PMI edged up slightly in July
The S&P Global Malaysia Manufacturing PMI rose to 50.6 in July from 50.4 in June, showing improvement in the manufacturing sector's conditions. The latest reading pointed to a marginal improvement in the health of the sector that was nonetheless the strongest reported since April. The headline PMI was buoyed by a renewed rise in production levels during July, first expansion since December 2021. New order inflows increased at a quicker rate, extending the current period of growth to four months. The rate of growth was the strongest since April, albeit only marginal, and was attributed to improved client confidence. On the other hand, new export orders declined for the first time since March and at the quickest pace for ten months amid global supply chain issues and subdued overseas demand. Input costs increased further in July, reflecting higher prices for a range of raw materials and freight costs. Looking ahead, manufacturers displayed stronger optimism regarding the outlook for output over the coming year. The overall degree of sentiment improved to the highest since February amid hopes of a stronger recovery in demand once price and supply pressures ease following the lifting of pandemic restrictions.
Outlook. We continue to stay positive in our outlook for Malaysia’s manufacturing sector (in particular, electronics) as it remains a key economic support pillar for the overall economy and for job creation. That said, we are mindful of the external risks due to the on-going Russia-Ukraine conflict and COVID-19 related supply chain disruptions. We are also keenly monitoring higher commodity prices which have persistently lifted the input price index, in turn adding to inflation risks for the overall economy. In all, while we are cognizant of the attendant external risks and price pressures, the latest PMI outcome does not change our outlook for Malaysia’s manufacturing and we retained outlook for the manufacturing activity to remain on a recovery path.
Global manufacturing loses further momentum as developed world output contracts
The JPMorgan Global Manufacturing PMI fell to a two-year low of 51.1 in July, down from 52.2 in June, with the new orders PMI dipping below 50 and jobs growth near stalling. The headline PMI, which is calculated as a weighted average of five sub-indices including output and new orders, stayed above the neutral 50.0 mark due to gains in stocks of purchases, employment and longer vendor lead times. Manufacturing output stagnated in July, following a brief return to growth in June. Rates of expansion slowed in both the consumer and investment goods industries. Intermediate goods producers saw output contract for the third time in four months. New business decreased for the first time since June 2020. New work intakes declined in the intermediate and investment goods industries and stagnated in the consumer goods category. New export business contracted for the fifth month running and at a faster pace. The deteriorating economic backdrop was also reflected in jobs growth and business confidence. Although employment rose for the twenty-first consecutive month, the rate of increase was among the weakest during that sequence. Positive sentiment among global manufacturers meanwhile dipped to its lowest level since May 2020. July saw rates of input cost and output charge inflation both ease to 17-month lows. While supply chain bottleneck pressures appear to be abating, as evidenced by shortening delivery times and fading price pressures, these improvements largely reflect a softening in the pace of demand growth as a consequence of last quarter’s surge in consumer prices.
Source: BIMB Securities Research - 2 Aug 2022
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