Overview

• The seasonally adjusted S&P Global Malaysia Manufacturing PMI rose to a sevenmonth high of 47.9 in November 2023, up from 46.8 in October 2023. Details showed some tentative signs of improvement following less pronounced slowdowns in new orders, output and employment, while business confidence reached a seven-month high.

Details

• During the surveyed period, new orders continued to decline for the fifteenth consecutive month during the month, primarily due to subdued demand, both domestically and in international markets.

• Despite this persistent trend, there were notable instances of customer new orders displaying tentative signs of improvement, contributing to a relatively mild deceleration in new business – the most modest since August. Correspondingly, production experienced a slight softening, marking the least significant slowdown in three months, although the moderation rate remained substantial.

• Meanwhile, the employment scenario approached stabilisation, registering the second gentlest reduction in the ongoing seven-month sequence. Instances of staffing adjustments were frequently linked to resignations.

• In addition, manufacturers successfully diminished their backlogs of work amid the subdued demand landscape. However, the pace of depletion was notably milder compared to the series record set in October.

• Furthermore, companies reported an uptick in the rate of input cost inflation, reaching a one-year high due to currency depreciation and elevated global prices for raw materials. Despite this increase, the inflation rate remained below the series average. Simultaneously, output price inflation in November remained relatively subdued. Nevertheless, the escalated costs compelled firms to implement higher charges for the fourth consecutive month.

Outlook

• The PMI of Malaysia manufacturing sector persists below the critical 50-point threshold, signaling a lack of growth. Throughout the initial 11 months of 2023, the average PMI remained modest at 47.7 (2022: 49.8).

• Beyond the faded base effect, the trajectory of the PMI in the final quarter is poised to impact key economic indicators, including industrial output, exports, and, ultimately, the Gross Domestic Product (GDP). From October to November, the PMI averaged 47.4, marginally lower than the third-quarter figure of 47.5. Despite this, upon closer examination of the current trend, there is optimism for a potentially improved reading in the final quarter, even if it remains below the growth threshold.

• According to S&P Global, the historical correlation between the PMI and GDP data suggests that the final quarter of 2023 will witness sustained growth, with the anticipated expansion likely comparable to the 3.3% YoY increase recorded in the third quarter. This aligns with data indicating relatively stable official manufacturing production figures on an annual basis.

• However, it's crucial to note that S&P's projection is based solely on the manufacturing segments, contributing approximately 23.2% to the total GDP in the third quarter. In essence, our maintained perspective is that there will be momentum in the manufacturing segment's contribution to real GDP, estimated at around 0.7% YoY. This contrasts with the 0.1% contraction observed in the third quarter of 2023, with an overall fourth-quarter GDP projection at 4.6% YoY.

• Looking ahead, the tentative indications of improved demand witnessed in November, coupled with optimistic expectations for the upcoming year, have bolstered confidence in the longterm prospects of manufacturing production. In fact, sentiment has experienced a slight strengthening, reaching its highest point since April. While overseas demand continues to hover at a moderate level, the upswing in business confidence implies that these emerging positive trends may carry forward into 2024. Companies participating in the survey are anticipating and, indeed, hoping for the sustained continuation of these positive developments. The aspiration is that demand will gradually strengthen, paving the way for meaningful growth in the not-too-distant future.

Source: TA Research - 4 Dec 2023