KUALA LUMPUR (Oct 1): Malaysia’s manufacturing sector remained challenging in September, although there were signs of improvement as the New Orders and Output indices both increased.

According to IHS Markit, Malaysian manufacturing activity, as measured by the Manufacturing Purchasing Managers’ Index (PMI), rose to a four-month high of 47.9 in September, up from 47.4 in August.

“This was the first time since April that the headline index has increased.

“At current levels, the PMI is broadly indicative of annual gross domestic product (GDP) growth of between 4.5% and 5%, according to historical comparisons,” said IHS Markit.

It said the survey's Output Index picked up slightly in September, but held close to the levels seen across the third quarter, indicating a stable production trend.

IHS Markit said newly-produced items were held in stock in some cases, as firms prepared in advance for client demand for these products.

It said the Stocks of Finished Goods Index rose to a four-month high in September.

Meanwhile, it said demand conditions also showed some signs of stabilisation in September.

Survey data had pointed to an increasingly tough environment in recent months, but improved sales to existing customers reportedly contributed to a rise in the New Orders Index.

Nevertheless, it said challenges remained apparent as clients held out for price discounts amid strong competitive pressures. External demand also remained fragile, with orders from key export markets dropping.

IHS Markit chief business economist Chris Williamson said with global headwinds intensifying, it is no surprise to see Malaysia’s manufacturers continuing to struggle in September, but there are at least some encouraging signs of upward momentum being regained.

“The September survey comes on the heels of global PMI data showing worldwide economic growth slipping closer to three years lows mid-way through the third quarter, led by the steepest drop in global trade since 2012. Geopolitical concerns and trade wars are dampening business activity around the world, with key markets such as the US and eurozone showing increased signs of stress.

“In this environment, it’s reassuring to see that the Malaysia PMI is indicating only a very marginal easing of growth so far in the third quarter, thanks to the PMI reviving to a four-month high in September, hinting that GDP is likely to continue to expand at a respectable annual rate of 4-5% in the third quarter.

“However, while businesses generally remain upbeat about expanding production over the coming year, September saw some loss of optimism. It will therefore be important to watch global developments to ascertain whether growth momentum can be sustained as we head into the fourth quarter.”