Malaysia’s PMI Lowest Among Asean-5 Countries in March

Malaysia’s manufacturing Purchasing Managers’ Index (PMI) fell further for the second consecutive month to 47.2 in March (47.6 in February), its lowest reading since December 2018. The country’s PMI has remained below the 50-level mark for the sixth straight month. On a quarterly basis, the manufacturing PMI averaged 47.6 in 1Q19, albeit lower than 48.1 in 4Q18. According to IHS Markit, the lower manufacturing PMI in March was led by declines in output and new orders, where it noted that manufacturers experienced slower overseas demand, especially from Asian countries.

As overseas demand remained tepid, firms were cautious over their inventory levels which led to a drop in both pre- and post-production stocks. Purchasing activity had also fallen in March. Meanwhile, employment was stable as the drop in workforce was offset by the rise in hiring. Despite current weak conditions, manufacturers had registered their strongest degree of optimism towards future output in nearly a year. This was in view of higher forecasts by firms for increased sales, new projects and products as well as successful new contract tenders.

IHS Markit guided that when compared to historical official data of manufacturing output, the survey data shows that Malaysia’s manufacturing output expanded at an annual pace of close to 4%. As such, on the supply side of GDP, we believe growth in Malaysia’s manufacturing sector, which slowed from 5% yoy in 3Q18 to 4.7% in 4Q18, may be slightly lower in 1Q19. According to IHS Markit’s projection, the lower quarterly average of Malaysia’s PMI reading in 1Q19 also suggests that real GDP growth will likely be about 4.6% in 1Q19, lower than the 4.7% registered in 4Q18. This is in line with our projection of real GDP growth to moderate to 4.6% in 1H19 before recovering to 4.8% in 2H19. Therefore, we expect GDP growth to be steady at 4.7% in 2019, the same level of expansion in 2018, amid sustain expansion of domestic demand.

In the coming months, we expect Malaysia’s manufacturing production to be supported by healthy demand for Malaysia’s electrical & electronic (E&E) products, as reflected by its steady export growth of 8.2% yoy in January, which will support the manufacturing sector. Furthermore, we also anticipate some recovery in Malaysia’s manufacturing PMI towards the second half of the year following some signs of stabilisation in China’s economy. China’s Caixin/Markit Manufacturing PMI rose to 50.8 in March (49.9 in February), its fastest pace since July 2018, boosted by a turnaround in new export orders, rise in new orders and higher employment. Global manufacturing PMI was unchanged at 50.6 in March, the same rate of increase in February, signalling healthy but modest operating conditions in the global manufacturing economy. However, Eurozone manufacturing PMI fell further from 49.3 in February to 47.5 in March, due to weaker PMIs in Germany, France and Italy.

Meanwhile, Asean manufacturing PMI rebounded to 50 in March from 49.6 in February, following two consecutive months of contraction, supported by higher new orders and output growth, reflecting an improvement in operating conditions. Among the Asean-5 countries, the Philippines, Indonesia and Thailand registered expansions, while Singapore and Malaysia remained below the 50-level mark. Malaysia’s PMI, however, was the lowest among the Asean-5 countries.

Source: Affin Hwang Research - 2 Apr 2019