External Demand Remained a Drag to the Manufacturing PMI

Malaysia’s manufacturing Purchasing Managers’ Index (PMI) fell further from 48.6 in April to 47.6 in May. This was the fourth consecutive months of decline and below the 50 level since January 2018 (averaging around 48.9 from February to May 2018). Based on the latest manufacturing PMI, the contraction was underpinned by decline in total new orders, led by weak foreign demand (lowest in nearly one-and-a-half years), reflecting some softening in the country’s external demand. Other subcomponent indicators including output, employment, suppliers’ delivery times and stocks of purchases, also trended lower compared to April.

The drop in the manufacturing PMI reading was also reflected in Malaysia’s leading economic index (LEI), which has slowed for the second consecutive month in March, with the slowdown extending from 1.8% yoy in February to 0.3% in March, possibly signalling that growth momentum in Malaysia’s economic activities have softened further in 2Q18 due to some uncertainties in the external environment. However, Malaysia’s recent trade report showed export growth recovering in March, turned around from -2% yoy in February to 2.2% yoy, supported by higher demand for electrical & electronic (E&E) products. The improvement in March’s exports were not across the board, where higher exports of other manufactured goods such as chemicals & chemicals products, machinery & appliances and manufactures of metal were dragged down by lower exports of refined petroleum products and optical & scientific equipment.

In Asean countries, the region manufacturing PMI posted an expansion level of 51.5 in May, its highest index level since July 2014. This was led by Vietnam (53.9), followed by Philippines (53.7), Singapore (52.8), Indonesia (51.7) and Thailand (51.1). Malaysia was the only country signalling a decline in the health of its manufacturing sector.

Source: Affin Hwang Research - 5 Jun 2018