KUALA LUMPUR (Oct 1): The recovery in the Malaysian manufacturing sector showed signs of losing momentum at the end of the third quarter of the year.

According to IHS Markit, the production trend deteriorated after having been unchanged in August, while new orders continued to moderate.

It said against this backdrop, firms scaled back workforce numbers again, albeit to a lesser extent than seen in August.

The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) – a composite single-figure indicator of manufacturing performance – posted 49.0 in September, down fractionally from 49.3 in August and falling for the third month running following June's rebound.

IHS Markit said on a more positive note, confidence in a gradual return to normality meant that business sentiment improved sharply to the highest since prior to the coronavirus disease 2019 (COVID-19) pandemic.

It said looking at the historical relationship between the PMI figures and official data shows that the latest reading is still representative of growth in both GDP and manufacturing production, albeit to lesser extents than in previous months.

It said new orders continued to weaken in September, although the pace of moderation was the softest in 2020 so far.

IHS Markit said total new business was again negatively impacted by a reduction in new export orders amid ongoing COVID-19 disruption.

It said with new orders slowing further, manufacturers scaled back output for the first time in four months, following a stable picture in August.

IHS Markit said on the other hand, September saw increasing confidence in the 12-month outlook for production.

It said sentiment jumped to a nine-month high, with firms predicting improvements in new orders as market conditions gradually return to normal.

Input costs increased for the fourth successive month at the end of the third quarter, often reflecting raw material shortages.

Some respondents specifically mentioned higher prices for imported items.

The rate of inflation was solid and broadly in line with the series average.

IHS Markit chief business economist Chris Williamson said some pull-back in the rate of recovery was always likely after the initial rebound from the collapse in global demand at the height of the pandemic, and September accordingly saw a renewed deterioration in the production trend.

However, he said historical comparisons indicate that the survey remains broadly consistent with both manufacturing output and GDP expanding at annual rates in excess of 4%.

“Moreover, the order book trend is showing signs of having bottomed out and future output expectations surged to the highest seen so far this year as growing numbers of companies considered the worst of the crisis to be behind them.

“Barring any further marked increases in infection rates, COVID-19 related restrictions are due to ease further in the coming months, according to IHS Markit’s COVID-19 Containment Index, which should further facilitate the manufacturing recovery.

“However, the future path of the virus remains uncertain and poses the biggest risk to the outlook,” he said.