• Lower manufacturing PMI reading was partly due to the decrease in output and new orders which led to softer domestic and external demand
• Manufacturers’ optimism increased to a five-month high as they were positive that output will rise over the next 12 months due to expectations that the likely end of the pandemic will lead to stable operating conditions and also increase production and sales.
• Asean manufacturing PMI in February fell to 49.7 from 51.4 in January, returning below the 50-level mark for the first time since October 2020

Manufacturing PMI in February Dragged by Weaker Output and New Orders

Malaysia’s manufacturing Purchasing Managers Index (PMI) fell for the second consecutive month to 47.7 in February (48.9 in January), its lowest reading since May 2020. The country’s PMI has remained below the 50-level expansion level for the seventh consecutive month in a row. The latest manufacturing PMI trended lower partly due to weaker output and new orders from softer domestic and external demand. It was guided that external demand was dampened by strict containment measures in key international markets, as well as the domestic extension of MCO 2.0 to contain the outbreak. In terms of employment, the report noted that rate of job losses edged towards stabilisation as employment levels declined marginally during the month. Following the stabilisation in the previous month, backlogs of work slowed down in February, as producers lowered volumes of outstanding business while spare capacity was available. Besides that, producers also reported of ongoing supply chain disruptions which caused difficulties in sourcing inputs for production. Nevertheless, on forward-looking indicator, manufacturers’ optimism increased to a five-month high, as they were positive that output will rise over the next 12 months due to expectations that the end of the pandemic (possibly from vaccine rollouts) will lead to stable operating conditions and also increase production and sales.

In the near term, we expect the recovery in Malaysia’s manufacturing PMI to be continually dampened by the extension of MCO 2.0 in Malaysia until 4 March in KL, Selangor, Johor and Penang as well as containment measures in other main export markets as the number of cases remain elevated. However, as more countries have started to their vaccination programmes, we believe that these containment measures and social distancing measures will begin to gradually ease. Therefore, barring any delays in the rollout of vaccines, we expect manufacturing production to be bolstered by the possibility of higher demand from advanced economies, due to recovery in global growth. In addition, production of E&E products will also likely benefit from global sales of semiconductors as well as higher demand from China in the months ahead. In 2021, we believe Malaysia’s growth in exports to recover at a growth rate of 6.5-7.0% (-1.4% in 2020), while manufacturing sector to turnaround steadily from -2.6% in 2020 to 5.5% projected for 2021.

Elsewhere, global manufacturing PMI rose to a three-year high of 53.9 from 53.6 in January led by higher output, exports and business optimism despite lower growth of new orders. However, China’s Caixin General Manufacturing PMI eased further for the third straight month to 50.9 in February from 51.5 in January, its weakest reading since May 2020, but remained above the 50-level mark for the tenth consecutive month PMI in China was mainly weighed down by slower rises in output and new orders as well as a decline in new export work. Meanwhile, in the Asean region, manufacturing PMI in February fell to 49.7 from 51.4 in January, fell below from expansionary region to contractionary region for the first time since October 2020 on the back of renewed declines in factory production and order book volumes. Among Asean countries, Singapore (55.2), Philippines (52.5), Indonesia (50.9) and Vietnam (51.6) recorded PMIs above 50 meanwhile Thailand (47.2) and Malaysia (47.7) remained in the contractionary region.

Source: Affin Hwang Research - 2 Mar 2021