(Updated)

Malaysian manufacturing sector returns to expansion

Photo by Mohamad Shahril Basri/The Edge

Photo by Mohamad Shahril Basri/The Edge

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KUALA LUMPUR (May 5): The Malaysian manufacturing sector reported a renewed increase in growth momentum at the start of the second quarter of 2022.

S&P Global said that although output levels remained subdued, incoming orders recovered strongly to register the sharpest rise since April 2014 amid improved client confidence.

It said despite the rise in demand, manufacturers continued to scale down workforce numbers as international border restrictions hampered the ability of firms to hire from abroad.

As a result, it said the rate of job losses quickened.

Businesses also noted concern that sustained price and supply pressures had hampered operations, with material shortages and delivery delays widespread.

S&P Global said this played on firms' expectations regarding future output, which fell to the lowest since last August.

The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index rose from 49.6 in March to 51.6 in April, indicating a renewed improvement in the health of the sector.

S&P Global said that looking at the historical relationship between the PMI and official statistics, the latest reading is representative of continued expansions in manufacturing production and GDP, though the survey suggested that growth was again held back by sustained supply chain issues.

It said the uptick in the headline figure was led by a sharp recovery in new order volumes, with growth of new business hitting an eight-year high.

Firms noted that stronger client confidence had boosted demand in both domestic and external markets.

Concurrently, new export sales returned to expansion territory for the second time in three months, albeit only marginally.

S&P Global Chief Business Economist Chris Williamson said April saw a welcome surge in demand for manufactured goods with producers reporting the strongest inflow of new orders for eight years, reflecting a combination of improving sales at home and abroad.

However, he said supply constraints in terms of both labour and component availability remain a major headwind to the economic recovery and meant manufacturers and their suppliers were again unable to meet demand on average, which is in turn putting sustained upward pressure on prices.

“Concerns over supply chain delays have meanwhile been further fanned by lockdowns in China and the Ukraine war, leading to a pull-back in business optimism about the outlook.

"In short, manufacturers are seeing signs of reviving demand but their efforts to boost production to meet these new orders continue to be frustrated by shortages, which will likely put further pressure on inflation in the coming months,” he said.