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Malaysia: Manufacturing PMI shows 10th consecutive moderation in June

PETALING JAYA: The seasonally adjusted S&P Global Malaysia manufacturing purchasing managers’ index (PMI) fell slightly to 47.7 in June from 47.8 in May to indicate a tenth consecutive moderation in operating conditions that was the strongest since January.

“The latest reading suggests that the weaker trends in official data for manufacturing production and GDP were sustained throughout the second quarter of the year,” S&P Global Market Intelligence said in a statement.

S&P Global Market Intelligence economist Usamah Bhatti said there were further signs in June that business conditions in the Malaysian manufacturing sector remained subdued, thereby holding back production and demand.

“While operations are still being helped by an improved supply chain environment, inflationary pressures are showing signs of increasing, given a third consecutive acceleration in inflation of average cost burdens.

“Nonetheless, muted demand conditions are weighing on the confidence of manufacturers, as the overall degree of optimism dipped to a 23-month low amid concerns regarding the timing of a demand recovery and how long the current malaise will last for,” Bhatti said.

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S&P Global Market said the weaker headline figure was in part due to a sustained slowdown in new order inflows that was the tenth in as many months. The moderation was solid and the strongest recorded since the start of the year as firms noted muted demand and client confidence in both domestic and international markets.

As such, export demand for Malaysian manufactured goods fell further and at the steepest rate for four months.

It added that muted demand contributed to a broadly similar moderation

in production volumes than had been seen in May. Firms often attributed softer output to subdued incoming orders.

There were reports that manufacturers looked to clear backlogs of work in June, an attempt that was successful as outstanding business decreased solidly again over the month. That said, the pace of depletion was the softest since March.

S&P Global Market said contracts were often fulfilled using stocks of finished goods, which were depleted for the twelfth consecutive month.

The lack of pressure on capacity however, contributed to firms reducing employment levels for the second successive month in June, with staffing levels scaled back to the greatest extent seen this year so far.

In line with the trends for output and new orders, manufacturers posted a continued moderation in purchasing activity, extending the current sequence to ten months.

“The pace of reduction was moderate and the quickest seen since January. This also came as average lead times shortened only marginally and to the lowest extent in six months as better material availability was partially offset by reported logistical issues. In turn, firms utilised subdued demand conditions to wind down stocks of inputs to the greatest extent since August 2021,” S&P Global Market said.

The rate of input cost inflation ticked up for the third month in a row to reach the highest since February. That said, the rise was relatively modest and well below the average seen in 2022.

The increase in operating expenses was often linked to higher raw material costs but there were also mentions of currency weakness adding to prices for imported items.

S&P Global Market said despite the rise in cost burdens, Malaysian manufacturers lowered output charges for the second time in three months. While only marginal, the reduction in prices charged was the steepest since April 2020.

“Looking forward, Malaysian manufacturers remained optimistic regarding the year-ahead outlook for output during June, amid hopes that demand would pick up in the second half of the year and provide a boost to sales.

“However, the overall degree of optimism eased to the softest since July 2021 as businesses noted concerns regarding the timing of the hoped-for recovery,” it said.

Source: https://www.thestar.com.my/business/business-news/2023/07/03/manufacturing-pmi-shows-10th-consecutive-moderation-in-june