Export drag dampens Malaysian manufacturing in January

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KUALA LUMPUR (Feb 3): The pick-up in the Malaysian manufacturing sector seen since last September lost some momentum during January.

According to IHS Markit, a key factor behind this moderation was export orders, which declined during January for the first time in three months.

The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) recorded 48.8 in January, down from 50.0 in the previous month.

IHS Markit said the current PMI reading is indicative of annual GDP growth of approximately 5%, representing a slight moderation in growth when compared to the end of last year.

It said a hindrance to Malaysia's manufacturing sector in January was export markets, as survey data showed the first drop in sales to external clients since last October.

IHS Markit said some respondents reported an ongoing tough global trading environment at the start of the year.

As a result, total order book volumes were adversely impacted to the greatest extent since September.

IHS Markit chief business economist Chris Williamson said having ended 2019 with their best performance for over a year, Malaysia’s manufacturers started 2020 on a softer footing.

He said much of the renewed weakness was a function of deteriorating external demand, with export orders under further pressure as a result of slower growth in key trading partners.

“Even after allowing for usual seasonal variations, business trends can be volatile around the year-end, so we don’t recommend reading too much into one month’s data.

“More importantly, the past four months have seen the strongest PMI readings since 2018, which corresponds with an easing of global trade tensions in recent months.

“Trade war developments will likely therefore play a major role in determining Malaysia’s export environment in coming months. Our forecasts are for global growth to pick up pace as we head through 2020, in part due to the phase one deal between the US and China helping boost trade, but we could see markets grow more nervous again if the US ratchets-up its focus on Europe.

“The Wuhan coronavirus also poses a key downside risk to the near-term Asia-Pacific economic outlook, albeit growth momentum could recover quickly if the epidemic ends rapidly,” he said.