Downturn in Malaysian manufacturing sector eases in September

Downturn in Malaysian manufacturing sector eases in September
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KUALA LUMPUR (Oct 1): Businesses signalled that the Malaysian manufacturing sector continued to be disrupted by the latest wave of COVID-19 cases in September, albeit to a lesser extent than in August.

IHS Markit said pandemic fighting measures meant that production and new orders fell sharply, though the respective rates of reduction were the softest for four months as some of these restrictions were eased.

At the same time, controls on movement under pandemic restrictions and raw material shortages limited production capacity in the sector, and contributed the sharpest rise in backlogs on record.

Yet on balance firms were increasingly optimistic that output would increase over the coming 12 months.

The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) — a composite single-figure indicator of manufacturing performance — rose from 43.4 in August to 48.1 in September.

IHS Markit said while the latest reading remained below the neutral 50.0 level to signal a further loss of momentum in the sector, the rate of deterioration eased significantly compared to the prior three months.

It said the historical relationship between the PMI and official statistics suggests that the recent downturn in GDP will have eased markedly at the end of the third quarter, and the rise in the latest PMI bodes well for improving momentum in coming months.

Both output volumes and new order inflows continued to be scaled back in September, though rates of decline both eased to the softest in four months.

Manufacturers commonly reported that strict pandemic restrictions had hampered production capacity and client demand.

Foreign demand for Malaysian manufactured goods also moderated, but at a softer pace than total new orders as some panellists reported particular pockets of demand in the Middle East and US.

The reduction in new export orders was only mild, and eased to the softest since May.

IHS Markit said Malaysian manufacturers reported that employment fell slightly for the second month in a row in September as businesses indicated difficulties in taking on foreign workers amid strict border restrictions.

It said the lack of productive capacity, coupled with sustained material shortages contributed to a surveyrecord increase in backlogs of work.

Goods producers continued to report significant supply chain delays during September.

Supplier delivery times lengthened at a robust rate once again as containment measures restricted supply of freight capacity and raw materials, exacerbating existing delays and shortages.

Delivery delays also contributed to a further reduction in input purchasing and holdings of pre and post-production inventories.

IHS Markit chief business economist Chris Williamson said the uplift in the PMI for September provides a clear signal that the recent easing of pandemic-related restrictions, both domestically and in many key export markets, is helping drive an improvement in the economy.

“According to IHS Markit’s COVID-19 Containment Index, virus-fighting restrictions have been rolled back in Malaysia to their lowest since April, facilitating production and helping ease the downturn in demand,” he said.

Williamson said vaccination progress has improved and virus cases were on a downward trend through September, helping drive renewed optimism about the economic outlook and driving business confidence to the highest since April.

“The survey data therefore add to signs that the economy has turned a corner at the end of the third quarter following a steep downturn, and the improvements in the survey’s future expectations and order book indicators point to growth picking up in coming months.

“Problems persist, however, most notably in terms of pandemic-related supply chain delays, which are pushing up prices and constraining output in some firms.

“Thus, while manufacturing looks to be on the road to recovery, that path will by no means be without its challenges,” he said.