• Output and new orders moderated in November partly due to the extension of CMCO in Peninsular Malaysia except for Perlis, Pahang and Kelantan.
• CMCO restrictions also caused some decline in new export orders compared to overall new businesses inflows
• For the full year 2020, we maintain our GDP growth projection of -5.0% (+4.3% in 2019) before improving to +6.0% projected for 2021.

Production and export orders affected by recent rise in Covid-19 cases

Malaysia’s manufacturing Purchasing Managers Index (PMI) fell slightly for the fifth consecutive month to 48.4 in November from 48.5 in October, remaining below the 50-level expansionary level for the fourth straight month. The sustained decline in Malaysia’s manufacturing PMI was partly due to some slowdown in activity from recent rise in the number of Covid-19 cases, both domestically and in other countries, which had resulted in lower demand for manufactured goods. In November, the Conditional Movement Order (CMCO) was extended to most part of Peninsular Malaysia with the exception of Perlis, Pahang and Kelantan from November 9th until December 6th . Despite this, IHS Markit noted that the declining trend appeared to be flattening and the extent of the decline is not as severe as during the first wave of the pandemic. During the month, production and new order volumes had eased due to the extension of CMCO. In addition, recent restrictions during CMCO also caused some decline in new export orders compared to overall new businesses inflows. Furthermore, the number of Covid-19 cases had increased in other countries and added to ongoing weakness in exports which contracted for the eleventh consecutive month. Besides that, producers had also experienced higher cost inflation for the sixth straight month due to raw material shortages. However, in terms of employment, the rate of job shedding had moderated to its slowest since May 2020.

Over the next 12 months, manufacturers remained positive led by optimism that an end to the pandemic would result in normal operating conditions and increase production. We believe that some of the optimism among manufacturers were likely due to the sustained recovery in China’s manufacturing sector. In November, China continued to show a sustained recovery in the manufacturing sector where China’s General Manufacturing PMI manufacturing sector rose for the seventh straight month to 54.9 in November from 53.6 in October, its highest reading since November 2010, driven by the increase in output and new orders. Global manufacturing PMI rose to 53.7 in November, from 53.0 in October, above the 50 mark for the fifth successive month. The survey showed broad-based improvement which might be related to vaccine hopes. Meanwhile, in the Asean region, the manufacturing PMI rose from 48.6 in October to 50 in November which was its first reading out of the contractionary region since March 2020. By countries, Singapore (51.7), Thailand (50.4) and Indonesia (50.6) were to only countries whose PMIs were above 50 in November. Meanwhile, Myanmar (43.2), Philippines (49.9) and Vietnam (49.9) were below the 50-level mark during the month.

Domestically, in Malaysia, IHS Markit guided that the historical comparison between PMI and GDP suggests that GDP continued to trend toward stabilisation however manufacturing output has slowed following the rise in Covid-19 cases in the country. We believe that although the improvement in China’s economy bodes well for Malaysia’s manufacturing sector as well as the Asean region, the current resurgence of cases will still be a downside risk to external demand the global supply chain if containment measures are extended further. We expect Malaysia’s real GDP growth to decline at around -2.0% yoy estimated for 4Q20 from -2.7% in 3Q20 (-17.1% in 2Q20). For the full year 2020, we maintain our real GDP growth projection of -5.0% (+4.3% in 2019) which is lower than the official projection between -4.5%, before improving to +6.0% projected for next year.

Source: Affin Hwang Research - 2 Dec 2020