KUALA LUMPUR (April 1): The Malaysian manufacturing sector saw a further moderation in March as demand conditions remained muted.

In a statement on Monday, S&P Global Market Intelligence said slowdowns were more pronounced for new orders, output and employment, while business confidence reached a seven-month low.

It said there was also a renewed improvement in vendor performance, as firms mentioned that suppliers were able to fulfil orders amid softer demand.

It said that on the price front, the rate of input cost inflation ticked higher at the end of the first quarter to reach the highest in 2024 so far, though this did not translate to higher charges as output prices were unchanged.

The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) eased from 49.5 in February to 48.4 in March.

S&P said the reading therefore signalled a slight moderation in the health of the sector.

The historical relationship between the PMI and official gross domestic product data indicates that the first quarter of 2024 will likely see continued growth, while the data are also consistent with a slight improvement in official manufacturing production on an annual basis.

New orders eased for the 19th month running in March amid weak demand.

The reduction quickened from that seen in February and was the most pronounced in 2024 so far.

Muted demand was also reported in international markets, where sales moderated for an eleventh consecutive month.

In line with the picture for new orders, production softened to the greatest extent in three months, with the rate of reduction solid overall.

Concurrently, employment was scaled back for the third consecutive month in March.

S&P said while the rate of job shedding was only marginal, it was the steepest seen in four months as firms reduced headcount in line with capacity requirements.

Moreover, firms were again able to reduce their backlogs of work given the muted demand environment, and the rate of depletion was the most pronounced since last October.

Purchasing activity, stocks of inputs and inventories of finished goods were all scaled back at the end of the first quarter, with only stocks of purchases seeing the rate of moderation ease on the month.

That said, firms saw shorter delivery times for the second time in three months during March.

The rate of improvement was only marginal, yet the most marked since May 2023 amid less pressure on suppliers given the muted demand environment.

The rate of input cost inflation ticked up to a three-month high amid currency weakness and higher prices for raw materials globally.

The rate of inflation remained softer than the series average, however.

On the other hand, prices charged for manufactured goods were unchanged from February, ending a seven-month sequence of inflation.

Hopes of a stronger improvement in demand were key to optimism regarding the 12-month outlook for output at the end of the first quarter.

The overall level of confidence eased to the softest since last August, however, as manufacturers highlighted concerns regarding the timing of a hoped-for recovery in demand.

S&P Global Market Intelligence economist Usamah Bhatti said Malaysian manufacturers remained under pressure in March, as the latest PMI data signalled that the sector sank slightly deeper into moderation, following positive signs at the start of 2024.

He said new orders, output and employment were all scaled back to a greater extent, and at the most pronounced rates in the year-to-date.

"The muted demand environment meanwhile allowed for a supplier improvement, as delivery times shortened to the greatest extent in 10 months.

“Meanwhile, despite another slight pick-up in input price inflation, prices charged for Malaysian manufactured goods were unchanged as some firms lowered output prices in an attempt to stimulate sales.

"Firms remained hopeful of an eventual improvement over the coming year, though concerns were raised about how long the current demand weakness would persist for. As a result, business optimism faltered to a seven-month low,” said Bhatti.