This article first appeared in The Edge Financial Daily on February 4, 2020

KUALA LUMPUR: After hitting a 15-month high in December, the pickup in Malaysia’s manufacturing gauge or Purchasing Managers’ Index (PMI) that was seen since September appeared to have lost momentum in January.

The composite single-figure indicator of manufacturing performance by IHS Markit retreated to 48.8, down from 50.0 in December, as Malaysia’s export orders declined for the first time in three months.

“ ... survey data showed the first drop in sales to external clients since last October. 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,” said IHS Markit in a statement yesterday.

Although the headline measure fell, it remained above the average seen for 2019, IHS Markit noted, adding the current PMI reading is indicative of annual gross domestic product growth of approximately 5%, representing a slight moderation in growth when compared to the end of last year.

“Nevertheless, companies remained strongly optimistic about output volumes over the coming 12 months, suggesting firms expect the current loss of pace to be temporary,” IHS Markit said, adding this was underpinned by forecasts of stronger demand, supportive state policies and planned expansion into foreign markets following the phase-one US-China trade deal.

Its chief business economist Chris Williamson said Malaysia’s manufacturers started 2020 on a softer footing, after ending 2019 with their best performance for over a year.

“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,” Williamson said.

“Trade war developments will likely therefore play a major role in determining Malaysia’s export environment in the 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 virus 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 added.