• Increase in manufacturing PMI reading was led by rises in output and new orders, where employment levels also rose in March.
• Producers’ optimism for the next 12 months had increased to its highest level in six months amid confidence that a recovery in domestic and external demand will underpin production levels and sales.
• We expect the ongoing gradual pick-up in economic activity to support expansion of Malaysia’s manufacturing production.

Global Manufacturing PMI Rose to a Ten-year High of 55 in March

Malaysia’s manufacturing Purchasing Managers Index (PMI) rose to 49.9 in March from 47.7 in February ending two consecutive months of declines. This was the country’s best PMI reading since July 2020. Despite this, the PMI has remained below the 50-level expansion level for the eighth consecutive month. The increase in manufacturing PMI was supported by rises in output while new orders hit a fivemonth high albeit both remaining subdued. However, it was noted that order inflows were still hindered by ongoing supply chain disruption due to the pandemic which had weighed on consumer and corporate demand. Meanwhile, foreign demand fell at its slowest pace since June 2020, as some producers reported returning orders in Asia and the Americas. Besides that, producers reported longest average supplier lead times since May 2020 due to shortage of materials and delays in receiving shipments. In addition, supply delays had also impacted restocking and in some cases, weighed on production. Nevertheless, Markit noted that employment levels increased for the first time in 12 months on the back of preparation for orders in the future which required additional capacity. Furthermore, producers’ optimism for the next 12 months had risen to its highest level in six months amid confidence that a recovery in domestic and external demand will underpin production levels and sales.

In the coming months, with the replacement of MCO 2.0 with CMCO since 5 March to 14 April 2021, we believe the ongoing gradual pick-up in economic activity to support expansion of Malaysia’s manufacturing production. Moreover, the continuing rollout of vaccines in Malaysia and in other economies will lead to gradual easing of containment measures which will also support foreign demand and growth in the sector. Additionally, increase in global demand for semiconductor as reflected in the 13.2% yoy growth in global sales in January (8.3% in December), will underpin production of E&E products. In BNM’s Annual Report 2020, it was guided that the manufacturing sector is projected to register a robust growth of 8.8% in 2021 (-2.6% in 2020) led by higher demand for telecommunications, cloud computing and medical device product while the consumer-related manufacturing cluster is anticipated to increase in line with the recovery in consumption activity. 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 6% projected for 2021.

Elsewhere, global manufacturing PMI rose for the second month in a row to a tenyear high of 55.0 in March from 53.9 in February led by higher growth of output, new orders and employment. Besides that, China’s Caixin General Manufacturing PMI expanded by 50.6 in March from 50.9 in February, remained above the 50-level mark for the eleventh consecutive month. China’s PMI was still weighed down by slower rises in output and new orders however new export orders expanded during the month supported by improvement in global economic conditions. Meanwhile, among Asean countries, Indonesia’s PMI expanded to 53.2 in March from 50.9 in February, its highest reading since the survey began and the fifth month above the 50-level mark. The increase in Indonesia’s PMI was led by sharp growth in output and new orders. Likewise, Thailand’s PMI in March rose to 48.8 from 47.2 in February but remained in the contractionary region for the third month in a row as the fall in output and new orders outweighed the first rise in new export orders since February 2020.

Source: Affin Hwang Research - 2 Apr 2021