KUALA LUMPUR (June 1): Business conditions for firms in the manufacturing sector have moderated to the greatest extent since January, with the S&P Global Malaysia Manufacturing Purchasing Manager’s Index (PMI) posting 47.8 points in May.

A month earlier, the PMI stood at 48.8.

In a statement on Thursday (June 1), S&P Global Market Intelligence said that Malaysian manufacturers reported demand weakness across a range of indicators in the latest PMI survey.

The survey revealed that output and new orders both moderated to a greater extent than in April, while firms scaled back employment for the first time in five months.

S&P Global said purchasing activity also softened, and this weakness in demand for input fed through to improvements in supply chains and relatively muted inflationary pressures.

It said that in fact, supplier performance improved to the largest degree in just over ten years.

When looking at the relationship between the PMI data and official GDP numbers, figures for the second quarter so far suggest that GDP growth will hold steady around the 5.5% year-on-year mark posted in the first quarter.

The latest data, meanwhile, is consistent with official manufacturing data nearing stagnation on a year-on-year basis.

Manufacturing new orders moderated for the ninth month running in May, with the latest slowdown being the sharpest in three months amid widespread reports of demand weakness.

The subdued demand environment was not limited to the domestic market, with new export orders also softening.

A lack of demand was also a key factor behind a further slowdown in manufacturing production, which eased for the tenth month running and to the greatest extent since January.

Manufacturers responded to these trends by scaling back their own purchasing activity, in turn feeding through to the most marked reduction in stocks of purchases for 21 months.

Stocks of finished goods were also down, linked not only to the demand environment, but also the delivery of products to customers.

Employment moderated in May, ending a four-month sequence of job creation.

Lower workloads was one factor leading to reduced staffing levels, but cost considerations and employee resignations were also mentioned.

Spare capacity continued to be evident, however, as backlogs of work reduced again.

Subdued demand conditions across the sector meant that pressures on prices and supply chains were much reduced relative to the picture in the aftermath of the Covid-19 pandemic.

Although input costs rose, the pace of inflation was muted.

Where input prices did increase, this was linked to higher raw material costs, in some cases on purchases in global markets.

Similarly, output prices were up slightly in May, reversing the marginal reduction in charges posted in April.

Suppliers' delivery times shortened for the fifth consecutive month. Moreover, the rate of improvement in vendor performance was the most pronounced since March 2013.

Looking to the future, there were concerns among firms that the current demand weakness would continue over the coming months.

Some panellists predicted the current soft-patch to last until the third quarter of the year at least. As a result, sentiment dipped for the fourth month running and was the lowest since June last year.

That said, the outlook remained positive overall, amid hopes that the demand environment would recover over the year ahead, thus leading to an expansion of production.

S&P Global Market Intelligence economics director Andrew Harker said Malaysian manufacturers are clearly enduring a challenging time at present, with reports of demand weakness widespread in the latest PMI survey.

He said that although the latest figures are still representative of growth in official numbers, the sector does appear to be going through a soft patch, which may yet last for some months to come.

“Reflecting this, firms are being cautious in terms of their spending, pulling back on input purchasing and scaling back employment.

“A degree of spare capacity has become evident, not least in supply chains where delivery times improved to the greatest extent in just over a decade in May,” he said.