Overview

• The S&P Global Malaysia Manufacturing Purchasing Managers' Index (PMI) has persistently undergone a prolonged contraction; however, the January reading indicates tentative signs of improvement. Moreover, the sector's downturn seems to be losing momentum and is on a trajectory toward a gradual recovery. The seasonally adjusted S&P Global Malaysia Manufacturing PMI surged to a sixteen-month high of 49 in January, marking an increase from December's 47.9. 

Details 

• Throughout the surveyed period, there was a continued moderation in new orders, although the deceleration was the least pronounced since October 2022. Many firms reported that the subdued demand environment exerted pressure on sales, although a few companies observed a slight improvement at the onset of 2024. This trend extended to international demand, with new export orders decreasing at the slowest pace in the current nine-month sequence. 

• The persistent subdued demand remained a pivotal factor contributing to a continued deceleration in production, easing for the eighteenth consecutive month, albeit at the most modest rate since April 2023. The muted demand conditions also influenced a softened appetite for inputs. Despite this, both input purchases and preproduction inventories experienced scaled-back adjustments, marking the most gradual rates in eight and ten months, respectively. Additionally, the reduction in holdings of finished items occurred at the slowest pace since last May. 

• Meanwhile, in January, employment exhibited a moderate trend for the eighth time in the past nine months. However, the rate of job shedding remained only fractional. Reports indicated instances of non-replacement for voluntary leavers, although other firms reported filling certain vacancies. 

• In addition, although input costs rose, the pace of inflation was the most muted for eight months. Where input prices increased, this was linked to higher raw material costs and a weak exchange rate. That said, output prices were raised only fractionally in January, with the rate of charge inflation the softest in five months. 

Outlook 

• According to S&P Global, the historical correlation between the PMI and GDP data suggests that the first quarter of 2024 may witness a more robust performance compared to the conclusion of 2023, aligning with our perspective. In the fourth quarter of 2023, the statistics department estimated a marginal YoY increase of 0.1% in the manufacturing segment, indicating a subdued recovery from the 3Q23 contraction of -0.1% YoY. 

• Furthermore, we anticipate an overall improvement in the sector during the first quarter of this year and throughout 2024, driven by enhanced performance in industries serving both export and domestic markets. Notably, Malaysian manufacturers surveyed expressed optimism, expecting an improvement in demand, with the overall degree of optimism slightly increasing from December.

Source: TA Research - 2 Feb 2024