KUALA LUMPUR (Aug 1): July saw a moderation in the Malaysian manufacturing sector as demand conditions remained muted, according to S&P Global Market Intelligence.

In a statement on Thursday, S&P said slowdowns were seen in new orders, output, employment and stocks, although firms pointed to firmer conditions overseas which resulted in a further increase in new export orders.

On the price front, the rate of input cost inflation edged higher at the start of the third quarter to reach an eight-month high, which translated to the steepest rise in output prices since September 2022.

The seasonally adjusted S&P Global Malaysia manufacturing purchasing managers’ index (PMI) dipped slightly to 49.7 in July from 49.9 in June.

The reading therefore signalled a fractional moderation in the health of the sector.

S&P said the historical relationship between the PMI and official gross domestic product (GDP) data indicates that the second quarter of 2024 will likely see continued growth, though the data are also consistent with a slight slowdown in the rate of increase in official manufacturing production on an annual basis.

New orders eased for the first time in three months amid weak demand. The reduction was only slight, however.

On the other hand, international markets saw growth for the fourth consecutive month in July, which firms often attributed to demand in the Asia and Oceania regions.

In line with the picture for new orders, production softened to the greatest extent for three months, though the rate of reduction was only modest.

Concurrently, employment was scaled back for the first time in four months in July as firms noted the non-replacement of voluntary leavers.

That said, the rate of job shedding was only slight. Malaysian manufacturers recorded an increase in backlogs of work for the first time since May 2022, as firms commented that export demand coupled with lower employment had placed additional pressure on capacity.

Purchasing activity, stocks of inputs and inventories of finished goods were all scaled back at the start of the third quarter, though only stocks of purchases saw the rate of moderation quicken on the month.

Despite weaker demand for inputs, firms saw longer delivery times for the third month in a row during July.

Lead times lengthened to the joint-largest degree since September 2022 amid reports of severe port congestion.

The rate of input cost inflation ticked up slightly in July to reach an eight-month high amid higher raw material and transportation costs.

At the same time, prices charged for manufactured goods were raised at the steepest rate since September 2022 as firms looked to pass additional cost burdens through to clients.

Hopes of an improvement in demand were key to optimism regarding the 12-month outlook for output at the start of the third quarter.

The overall level of confidence strengthened to the highest since March, though it remained below the long-run average (56.3) amid concern regarding the timing of a domestic demand recovery.

S&P Global Market Intelligence economist Usamah Bhatti said Malaysian manufacturers remained under pressure in July, as the latest PMI data signalled that the sector saw a slightly steeper moderation in operating conditions.

He said new orders, output and employment all softened, with incoming new business falling for the first time in three months.

"According to panel members, the subdued environment was largely limited to the domestic economy, as new export orders rose for the fourth month in a row, and at the joint-fastest pace since April 2021.

“Firms also cited this improvement in demand as a key factor behind the renewed rise in outstanding business.

"Inflationary pressures remained prevalent among Malaysian manufacturers meanwhile, as input price inflation edged slightly up to reach the highest for eight months. This contributed to the strongest rise in output charges since September 2022,” he said.

https://www.theedgemarkets.com/node/721209