Malaysian manufacturers show a continued decline in output growth in July

KUALA LUMPUR: The seasonally adjusted S&P Global Malaysia manufacturing purchasing managers’ index (PMI) rose marginally to 47.8 in July from 47.7 in June.

The latest reading pointed to a sustained slowdown in business conditions that was broadly in line with that seen on average over the second quarter of the year.

S&P Global, in a statement, said the latest PMI reading is consistent with sustained expansions in both manufacturing production and GDP, although there are signs that growth has dampened somewhat since the start of the year.

“The Malaysian manufacturing sector continued to indicate sustained weakness in operating conditions in July, according to the latest PMI data. New order intakes moderated to the greatest extent for six months, while production levels continued to be scaled back at a solid pace, indicating that the sector still has some way to go before demand recovers fully.

“Firms also noted concern on the price front, as input price inflation accelerated for the fourth month in a row to reach the highest since February. In an effort to limit cost pressures, firms looked to reduce workforce numbers, with the latest moderation the sharpest since the end of last year,” S&P Global Market Intelligence economist Usamah Bhatti said.

According to S&P Global, the strongest contributor to the sub-50.0 reading in July was a solid reduction in new order volumes.

It noted that demand has now moderated in each of the last 11 months, with the latest slowdown the most marked since January. A number of firms noted that client confidence remained subdued in both domestic and international markets.

Notably, the rate of moderation in new export orders quickened to the fastest since May 2020.

Meanwhile, production volumes were scaled back for the twelfth month running in July. The rate of reduction was broadly similar to those seen in May and June, as survey respondents reported that drops in output were reflective of relatively muted demand conditions.

S&P Global said July data was indicative of a third consecutive fall in workforce numbers at Malaysian manufacturers, albeit one that was marginal overall. That said, the rate of job shedding was the most marked since the end of last year. Where a decrease in employment levels was reported, companies commonly linked this to the non-replacement of voluntary leavers.

Moreover, firms signalled that they had sufficient capacity to work through existing orders amid subdued demand, as evidenced by a further fall in backlogs of work that was the quickest for three months.

On the price front, average cost burdens rose at a modest pace, extending the current sequence of rising prices to 38 months.

Although below the series average, the rate of inflation accelerated for the fourth month running to reach the highest since February.

“Malaysian manufacturers remained hopeful that demand conditions would normalise over the coming 12 months, as indicated by the twenty-fifth consecutive month of optimism regarding future output. Sentiment was relatively muted, however, and eased to the weakest in the current sequence of optimism,” S&P Global said.