Overview

• The manufacturing sector in Malaysia remains below the 50-threshold mark, with overall demand staying subdued, according to a survey by S&P Global. The survey data also suggests that the coming months are likely to remain muted, as manufacturers have further scaled back purchasing activity and reduced stocks of both purchases and finished items due to a lack of new orders. The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) was 49.7 in August, unchanged from July.

Details

• During the surveyed period, manufacturers frequently reported that demand in the sector remained subdued in August, with weak customer confidence noted. Total new business experienced a slight moderation for the second consecutive month. Meanwhile, demand conditions in international markets improved for the fifth month in a row, although at the slowest rate in the current sequence.

• Furthermore, manufacturers reduced production for the third consecutive month, with the pace of moderation intensifying from July to its strongest level in four months. At the same time, stocks of finished goods were further depleted as firms relied on existing inventories to fulfill orders.

• Malaysian manufacturers reported a slight decline in employment levels for the second consecutive month. They indicated having adequate capacity, as the level of outstanding business decreased once again in August, reaching its largest reduction since April.

• Raw material prices have increased, particularly for those sourced internationally due to exchange rate weakness. In response, output charges were raised for the fifth consecutive month. Both input and output prices have risen at their most pronounced rates since September 2022.

Outlook

• Trend-wise, the performance of the manufacturing sector remains steady, with a promising yearto-date reading. The average for the first eight months of the year is 49.4, an improvement over 2023's average of 47.8. Additionally, the quarter-to-date data indicates that this positive trend of the manufacturing segment is likely to continue, with performance expected to remain broadly consistent with the rates observed in the second quarter.

• Historical data shows a positive relationship between PMI and official statistics, suggesting sustained improvement in both Gross Domestic Product and manufacturing production for the third quarter of 2024. We have analysed correlations between PMI figures and official metrics such as real manufacturing sector data, real GDP, and real exports. The correlations are notably strong, at 62.2%, 60.4%, and 44.2%, respectively. In the second quarter of 2024, the manufacturing segment of real GDP increased by 4.7% YoY. If the PMI figure for September remains around its current level, we can reasonably expect similar growth rates to continue.

• Positively, firms surveyed remain confident that output will improve over the coming year, with overall confidence levels solid. However, they expressed uncertainty about the pace of recovery, noting that downside risks are associated with a sluggish global economy.

Source: TA Research - 3 Sept 2024