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Confidence rising although Malaysian manufacturing sector slows further in September: IHS Markit

Confidence rising although Malaysian manufacturing sector slows further in September: IHS Markit

01 Oct 2020

September has seen increasing confidence in the 12-month outlook for Malaysia’s manufacturing sector, according to IHS Markit.

The firm said sentiment had jumped to a nine-month high, with firms predicting improvements in new orders as market conditions gradually return to normal.

This is despite the sector’s recovery having showed signs of losing momentum at the end of the third quarter of the year.

“The production trend deteriorated after having been unchanged in August, while new orders continued to moderate. Against this backdrop, firms scaled back workforce numbers again, albeit to a lesser extent than seen in August.

“On a more positive note, confidence in a gradual return to normality meant that business sentiment improved sharply to the highest since prior to the Covid-19 pandemic,” IHS Markit said.

The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI), a composite single-figure indicator of manufacturing performance, posted 49.0 in September.

This was down fractionally from 49.3 in August and falling for the third month running following June’s rebound.

Looking at the historical relationship between the PMI figures and official data shows that the latest reading is still representative of growth in both gross domestic product (GDP) and manufacturing production, albeit to lesser extents than in previous months.

“New orders continued to weaken in September, although the pace of moderation was the softest in 2020 so far. Total new business was again negatively impacted by a reduction in new export orders amid ongoing Covid-19 disruption.

“With new orders slowing further, manufacturers scaled back output for the first time in four months, following a stable picture in August,” IHS Markit said in a statement today.

Chris Williamson, chief business economist at IHS Markit, said some pull-back in the rate of recovery was always likely after the initial rebound from the collapse in global demand at the height of the pandemic.

“September accordingly saw a renewed deterioration in the production trend. However, historical comparisons indicate that the survey remains broadly consistent with both manufacturing output and GDP expanding at annual rates in excess of four per cent.

“Moreover, the order book trend is showing signs of having bottomed out and future output expectations surged to the highest seen so far this year as growing numbers of companies considered the worst of the crisis to be behind them,” he added.

Williamson said barring any further marked increases in infection rates, Covid-19 related restrictions were due to ease further in the coming months, based on IHS Markit’s Covid-19 Containment Index.

This should further facilitate the manufacturing recovery.

He, however, cautioned that the future path of the virus remains uncertain and poses the biggest risk to the outlook.

Source: NST Posted on : 01 October 2020