Overview

• The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Manager Index (PMI) held steady at 47.9 in December 2023, remaining below the 50-point threshold since August 2022. 

• Comparatively, data revealed that among the seven ASEAN nations under observation, including Malaysia, manufacturing conditions were weak as well in four other countries, namely Myanmar (42.9), Thailand (47.9), and Vietnam (48.9). Nevertheless, some countries showed an improvement in their operating conditions, with the Philippines (51.5), Singapore (52.0), and Indonesia (52.2) leading the way. In summary, the ASEAN manufacturing sector concluded the year on a subdued note, scoring 49.7, a decline from the previously recorded 50 points. 

• Malaysian manufacturers noted that demand in the sector remained subdued in December due to the weak customer confidence. As a result, total new business moderated for the 16 successive months. Demand conditions in international markets also eased, with new export orders falling for the eighth month in a row, but at the softest rate since May. 

• With customer demand remaining muted, manufacturers scaled back production but the moderation was the slowest recorded since August. Meanwhile, stocks of finished goods were wound down at the fastest pace since September, as firms used existing stocks to fulfil orders. 

• On a positive note, Malaysian manufacturers exhibited resilience in the face of challenging market conditions by increasing employment levels for the first time in eight months. Simultaneously, companies managed to reduce their outstanding business at a marginal rate, marking the slowest pace since August 2022. 

• For the first time in three months, the rate of input cost inflation eased in the Malaysian manufacturing sector. Firms continued to report high raw material prices, notably due to exchange rate weakness. In response, output charges were raised further, though the rate of inflation has been modest and broadly stable for the past four months. 

• Although the most recent PMI data indicates subdued demand conditions in the Malaysian manufacturing sector as of the close of 2023, S&P Global affirms that the findings align with modest growth in official statistics. The trajectory of the PMI throughout the final quarter is expected to influence crucial economic indicators, including industrial output, exports, and ultimately, the Gross Domestic Product (GDP). The PMI averaged 47.5 in 4Q23, matching the third-quarter average figure (2023 average: 47.8; 2022 average: 49.8). 

• Looking ahead, there is optimism that new orders will rebound, buoyed by growing confidence in an upcoming rise in production over the next 12 months. The existing subdued demand environment has kept optimism levels relatively steady since September, though concerns persist regarding the speed and timing of the anticipated recovery.

Source: TA Research - 3 Jan 2024