• The manufacturing PMI rose above the 50 expansion level for the first time since August 2020, led by higher output and new orders, but employment levels fell slightly in April
• Elsewhere in Asia, the improvement in manufacturing PMI was reflected almost across the board, with China’s PMI expanded by 51.9 in April
• Looking at the relationship between the PMI and industrial production, the April’s PMI of 53.9 suggest stronger real GDP growth in 2Q21

Higher April’s manufacturing PMI led by increases in output and new orders

Malaysia’s manufacturing Purchasing Managers Index (PMI) rose strongly to 53.9 in April (49.9 in March), rising above the 50 expansion level for the first time since August 2020. This was also the country’s strongest expansion PMI reading since July 2012, reflecting continued steady improvement in the manufacturing sector. The increase in April’s manufacturing PMI was led by expansion in output and new orders. In particular, new orders rose above the expansion level in April, which marked the first increase since September 2018. The report noted that demand in key market across US and Asia recovered, where new export sales rose above expansion level for the first time since November 2019. However, employment levels in manufacturing firms trended slightly lower, attributed partly to some restrictions on issuance of foreign work permits. It was also mentioned that there was pressure in building capacity due to the increase of outstanding business amount for the second consecutive months. Higher prices of raw materials and logistics led to increase in input costs for the eleventh consecutive months. In the months ahead, we believe the country’s manufacturing PMI to remain healthy, where producers’ optimism for the next 12 months had risen to its highest level since August 2019, amid hopes on the vaccination programme that will underpin wider economic recovery. Looking at the historical relationship between the PMI and industrial production, the April’s PMI of 53.9 suggest stronger real GDP growth in 2Q21.

Elsewhere in Asia, the improvement in manufacturing PMI was reflected almost across the board. China’s Caixin General Manufacturing PMI expanded by 51.9 in April from 50.6 in March, remained above the 50-level mark for the twelve consecutive month, where firms reported solid increases in output and sales, with renewed expansions in employment and purchasing activity. South Korea’s manufacturing PMI expanded by 54.6 in April (55.3 in March), while Taiwan’s PMI rose to 62.4 in April (60.8 in March), signalling continued solid improvement in the region’s manufacturing sector. Among the Asean countries, Indonesia’s PMI expanded by 54.6 in April from 53.2 in March, its highest reading since the survey began for second successive month. This was the sixth month above the 50-level mark, where the increase was led by sharp growth in output and new orders.

Domestically, with exports growth sustaining strongly in 1H21, from healthy demand for Malaysia’s E&E products, we believe the country’s manufacturing output will continue to be supported by intra-regional trade as well as solid monthly global semiconductor sales. On a quarterly basis, global sales of semiconductors rose by 17.8% yoy in 1Q21, with increases across all major regional markets. As Malaysia’s exports of E&E products account for 36% of total exports, the strong demand will support Malaysia’s exports as well as the region’s external demand. In 2021, we expect 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.

While there remains downside risk to our current real GDP growth projection for Malaysia, which we estimate to average around 6.0% for 2021, at the lower end of the official forecast of 6.0-7.5%, we believe the domestic economy is on the recovery path. BNM will release the 1Q21 GDP figures on 11th May 2021.

Source: Affin Hwang Research - 4 May 2021