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Malaysia’s manufacturing sector recovery moderated further in November — IHS Markit

Malaysia’s manufacturing sector recovery moderated further in November — IHS Markit

01 Dec 2020

The recovery in the Malaysian manufacturing sector continued to lose momentum midway through the fourth quarter of the year.

According to IHS Markit, businesses continued to scale back production, while new order inflows moderated.

It said a rise in Covid-19 cases both domestically and around the world has led to reduced demand for Malaysian manufactured goods while supply chains struggled to deliver inputs in a timely manner.

The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) — a composite single-figure indicator of manufacturing performance — dipped fractionally for a fifth month in a row, down from 48.5 in October to 48.4 in November.

This reading signalled a further moderation in the health of the manufacturing sector, although the trend appears to be flattening, while the deterioration was considerably less marked than that seen during the first wave of the pandemic.

IHS Markit said the historical relationship between official statistics and the PMI suggests that while gross domestic product (GDP) continued to trend toward stabilisation, output in the manufacturing sector had stagnated as both the Malaysian economy and key international markets combated a resurgence in Covid-19 cases.

It said both production and new order volumes moderated in November, yet the pace of deterioration was markedly softer than in April.

It said firms commonly attributed the latest round of scaling back to the reintroduction of restrictions on movement which dampened domestic and external markets.

IHS Markit said greater restrictions led to a fall in new export orders, which reduced faster than overall new business inflows.

It said a resurgence of infections in key markets such as India was cited as a contributor to ongoing weakness in exports, which fell for the eleventh month running.

It said positively, staffing levels among Malaysian manufacturers edged towards stabilisation in the latest survey period.

IHS Markit said the rate of job shedding eased to the softest since May and was marginal overall.

As demand was subdued, firms took the opportunity to reduce outstanding business, however capacity pressure showed signs of emerging as backlogs of work declined at the softest pace since June, it said.

It said in response to slower production and order volumes, Malaysian manufacturing businesses scaled back purchasing activity.

Holdings of raw materials and semi-finished goods also dipped midway through the final quarter of 2020, as did stocks of finished products.

Looking forward, IHS Markit said Malaysian manufacturers were increasingly optimistic regarding the 12-month outlook for production.

It said positive sentiment was signalled for the eighth month running amid hopes that an end to the pandemic would bring about a return to normal operating conditions and boost production.

IHS Markit chief business economist Chris Williamson said manufacturers continue to battle against Covid-19 headwinds, with renewed restrictions dampening domestic activity while lockdowns in other countries have limited export growth as well as caused further delays in the supply of materials.

“Crucially, however, the impact is far less severe than seen earlier in the year, suggesting the hit to fourth-quarter GDP will be much less marked than we saw in the second quarter.

‘Business optimism about the year ahead is also running considerably higher than seen earlier in the year, albeit below the recent peak seen in September, which bodes well for business spending — especially investment — to show greater resilience,” he said.

Source: The Edge Markets