The Lowest Level Since the Survey Commenced in July 2012

Malaysia’s manufacturing Purchasing Managers’ Index (PMI) fell for the third straight month to 46.8 in December (48.2 in November), its lowest level since the survey commenced in July 2012. Malaysia’s PMI has also remained below the 50-level mark for the third consecutive month. On a quarterly basis, the manufacturing PMI averaged 48.1 in 4Q18, slowing down from 50.8 in 3Q18. According to IHS Markit, the continued contraction was due to falling demand, where it noted that there were unfavourable intakes of new work from overseas in December, especially with lower orders from Europe and Asia Pacific countries.

Due to slower demand, firms had reduced their stocks to a level since November 2016. Buying activity declined for the third straight month in December, registering its sharpest fall since June 2017. The scaling back by firms and producers indicates that the outlook for Malaysia’s manufacturing sector will likely be weak going into 2019. Meanwhile, employment stagnated for the first time in six months, while operating expenses were elevated by weaker RM against the US$ and rise in global raw material prices.

Despite the weak sentiments and falling PMI in 4Q18, we believe Malaysia’s manufacturing production will unlikely to decelerate sharply during the same quarter, as it will be supported by healthy country’s exports of electrical and electronic (E&E) products, as reflected in the global semiconductor sales. We also expect Malaysia’s real GDP growth to likely recover and expand by 4.7% yoy estimated for 4Q18, from 4.4% in 3Q18. Going forward, against the backdrop of modest but healthy growth in the global economy, we expect Malaysia’s real GDP growth to rise by 4.7% projected for 2019, from 4.8% in 2018, partly reflecting slower growth in both external and domestic demand.

In the same month, global manufacturing PMI also registered a drop in its reading, falling from 52 in November to a 27-month low of 51.5 in December. Countries which experienced slowdown were China, France, Italy, Taiwan and South Korea. In line with slower global PMI, the headline PMI in the Asean region had also slowed slightly to 50.3 in December from 50.4 in November, its slowest expansion since March 2018 but remained above the 50-level for the second consecutive month. On a quarterly basis, the region’s PMI had averaged 50.2 in 4Q18 from 50.6 in 3Q18, its lowest quarterly average since 3Q17. This was due to weak growth of new orders while export orders decline led by a drop in foreign demand reflecting the negative impact the region is experiencing due to the ongoing US-China trade tensions.

Source: Affin Hwang Research - 3 Jan 2019