• Weaker manufacturing PMI reading was partly due to the decrease in output and new orders, as the pandemic weighed on demand and export sales
   
• Manufacturers remained positive that output will rise over the next 12 months amid optimism that the end of the pandemic will boost recovery in domestic and external markets
   
• Global PMI eased slightly to 53.5 in January, from 53.8 in December, but companies remaining cautiously optimistic about the year ahead.

Lower PMI Reading Weighed by Decrease in Output and New Orders

Malaysia’s manufacturing Purchasing Managers Index (PMI) fell to 48.9 in January from 49.1 in December and has remained below the 50-level expansionary level for the sixth consecutive month. The weaker manufacturing PMI reading was partly due to the decrease in output and new orders, as the pandemic weighed on demand and export sales. We believe the recent reinstatement of the MCO 2.0 since 13 January 2021 had also negatively impacted output and sales. Furthermore, production and shipments were also hindered by supply constraints amid the tightening of restrictions in Malaysia as well as in other countries. Meanwhile, new export orders eased further during the month compared to total new businesses amid the disruption in international markets. According to the survey, backlogs of works stabilised following 28 months of depletion which indicated rising pressure on existing capacity, where producers noted a lack of manpower to fulfil orders. Hence, employment levels had also dropped slightly. Nevertheless, going forward, manufacturers remained positive that output will rise over the next 12 months amid optimism that the end of the pandemic will boost recovery in domestic and external markets. The level of optimism, however, trended lower during the month and was the weakest in five months amid rising concerns of pandemic following news of new variants of Covid-19.

In the months ahead, we expect uncertainty surrounding the development of the pandemic in Malaysia and abroad, as the number of cases continue to remain elevated, and will likely weigh on recovery of the Malaysia’s manufacturing PMI. However, we believe that the roll out of vaccines in several countries as well as the eventual start of vaccine roll out in Malaysia by March will support economic recovery. Besides that, we believe the strong recovery in China’s GDP growth will support Malaysia’s manufacturing sector as well as the Asean region. BNM will release the 4Q20 GDP figures on 11th February 2021. For 2020 as a whole, we maintain our real GDP growth projection of -5.0% (+4.3% in 2019). In 2021, we expect Malaysia’s real GDP growth to rebound by 6% but with some downside risks. We will likely revise our 2021 real GDP growth forecast subject to the duration of current MCO, which may be extended from 4 February for another two weeks. However, the introduction of the PERMAI stimulus package as well as accommodative monetary policy will support the recovery of the domestic economy.

Elsewhere, global PMI eased slightly to 53.5 in January, from 53.8 in December, with companies remain cautiously optimistic about the year ahead. China’s Caixin General Manufacturing PMI eased to 51.5 from 53.0 in December, its weakest reading since June 2020, but remained above the 50-level mark for the ninth consecutive month weighed down by slower rises in output and new orders as well as a renewed fall in new export work. Meanwhile, in the Asean region, manufacturing PMI in January rose to 51.4 from 50.8 in December, its best reading since May 2018 and its third consecutive month above the 50-level mark supported by higher output which increased to a 32-month high while new work also rose by its fastest rate since July 2014. Among Asean countries, Singapore (55.9), Philippines (52.5), Indonesia (52.2) and Vietnam (51.3) recorded PMIs above 50 meanwhile Thailand (49.0) and Malaysia (48.9) were in the contractionary region.

Source: Affin Hwang Research - 2 Feb 2021