KUALA LUMPUR (Jan 2): Malaysia's manufacturing sector is heading into 2020 on a firm footing, with survey data for December showing further momentum gains in output and new orders.

According to IHS Markit, production expanded at the fastest pace since September 2018 amid reports of stronger demand pressures.  

That said, it added that renewed fragilities appeared in international markets.

The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) – a composite single-figure indicator of manufacturing performance – increased to a 15-month high in December of 50.0, from 49.5 in November.

IHS Markit said the latest survey data pointed to the fastest increase in goods production since September 2018.

It said analysis of comparable historical official data on Malaysian manufacturing suggests that, at current levels, the survey’s output index is consistent with production growth of 6%.

It explained that according to anecdotal reasons, production volumes were supported by improved demand conditions.

IHS Markit said the trend in new orders continued to pick up during December, with the respective index rising for the fourth straight month to its highest in over a year.

It said successful project tenders and greater sales to existing clients were mentioned by survey respondents.

Nevertheless, it said weakness across international markets remained evident as new export orders stagnated in December.

IHS Markit said companies attributed the slowdown to unfavourable conditions across key trade destinations.

It said Malaysian manufacturers indicated that operating capacities were sufficient to cope with current workloads as backlogs declined in December for a sixteenth successive month.

Consequently, it said employment levels were left broadly unchanged.

It said while a number of companies reduced payroll numbers in order to contain costs, some boosted hiring in line with greater output.

IHS Markit chief business economist Chris Williamson said Malaysia’s manufacturers move into 2020 reporting increasingly brighter business conditions, having ended 2019 with their best performance for over a year.

He said survey indicators of output and order book inflows moved higher as recent headwinds to demand showed further signs of easing, in turn helping boost optimism about the year ahead to one of the highest seen over the past six years.

“At current levels the PMI is indicative of manufacturing expanding at an annual rate of approximately 6% and GDP growing by 5.5%.

“Whether expectations of faster growth in 2020 materialise will likely depend on global trade developments and ongoing uncertainty in relation to trade wars, meaning firms continue to focus on keeping costs low.

“But any further improvements in the news flow regarding trade will hopefully spur faster growth and boost risk appetite in 2020 after what has been the weakest PMI performance for three years in 2019, matching a similar slowdown in the global economy,” it said.