Manufacturing sector reports sharp slowdown in January

Manufacturing sector reports sharp slowdown in January
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KUALA LUMPUR (Feb 3): Businesses signalled that the Malaysian manufacturing sector saw demand conditions ease at the start of 2022 as price and supply pressures hindered output and new orders.

IHS Markit said renewed production and order book declines were reported for the first time since September as firms commented that sustained raw material shortages and rising prices had hampered production capacity and client confidence.

That said, firms remained optimistic that the downturn would be short lived, as employment levels stabilised following a slight reduction in December and businesses grew increasingly confident that output would increase over the coming 12 months, with sentiment reaching the highest since April last year.

The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) — a composite single-figure indicator of manufacturing performance — fell from 52.8 in December to 50.5 in January.

While the latest reading remained above the neutral 50.0 level for the fourth month running, the rate of expansion was the softest in the current sequence.

The historical relationship between the PMI and official statistics suggests that the upturn in GDP eased at the start of 2022.

IHS Markit said both output volumes and new order inflows were scaled back in January.

While the reductions were only modest, they marked the first such declines seen for four months.

Manufacturers commonly reported that raw material shortages and rising prices had dampened client demand and production capacity.

Foreign demand for Malaysian manufactured goods also moderated, but at a softer pace than total new orders as some panellists reported particular pockets of demand in the US.

The reduction in new export orders was only mild, though was the eighth in nine months.

Malaysian manufacturers reported that employment levels stabilised in January, following a slight dip in the previous survey period.

Where an increase was reported, firms reported taking on additional staff to aid production although businesses indicated difficulties in taking on foreign workers amid strict border restrictions.

Evidence of a lack of productive capacity was apparent, as backlogs of work increased for the sixth successive month, although the rate of accumulation was the weakest since August.

IHS Markit Chief Business Economist Chris Williamson said Malaysia’s manufacturers reported a new downturn in January as the Omicron variant created further headwinds for manufacturers around the world, dampening demand and exacerbating existing, unprecedented supply chain delays.

“However, the downturn looks to be only mild in comparison to previous waves of the pandemic and will likely be short lived.

"In Malaysia, manufacturers have in fact grown increasingly optimistic that the longer-term outlook has brightened, with business expectations for the year ahead rising to the highest since April and almost at the highest seen since the pandemic began,” he said.