Friday 29 Mar 2024
By
main news image

US-Ringgit_Chart_DED_4aug15_theedgemarketsKUALA LUMPUR: Malaysia’s manufacturing Purchasing Managers’ Index (PMI) remained weak at 47.7 points in July, according to US-based Markit Group Ltd. Economist believe it is an indication of softening demand for Malaysian exports.

Besides that, the weak ringgit, which has inflated the input costs of products with high import content, has also deterred manufacturers from raising production to avoid building up inventories.

In a survey report yesterday, Markit indicated that the July PMI stood at 47.7, compared with 47.6 in June (the lowest reading since October 2012), signalling a further deterioration in operating conditions of the local manufacturing industry, although the PMI was little changed from June.

Markit’s PMI report pointed out that the unfavourable exchange rates and imposition of the consumption tax had pushed up raw material costs, resulting in higher purchasing costs.

“Buying activity contracted at the third-fastest rate in the series’ history, while inventories of pre-production items were depleted at the quickest rate,” the report noted.

Commenting on the Malaysian PMI survey, Markit economist Amy Brownbill said buying activity contracted for the second straight month, leading to a fall in stocks of purchases.

She also noted that the rate of depletion of pre-production goods was the fastest in the survey’s history.

“In contrast, new export orders rose for the sixth month in a row. Reports of securing new international clients and the launching of new projects were cited as the main factors behind the latest expansion. However, the rate of increase was only marginal,” Brownbill said.

Overall, she opined that the latest survey data indicated worsening operating conditions for Malaysian manufacturers.

“Production declined further, alongside a marked contraction in new orders. Concurrently, employment levels declined at the quickest rate since July last year,” Brownbill added.

When contacted, M&A Securities Sdn Bhd head of research Rosnani Rasul said the weak PMI was attributable to the weak currency.

“Manufacturers will wait until the ringgit is stable before they import. They don’t like volatility in their input costs,” she reckoned.

The ringgit has weakened over 20% in the past 12 months to RM3.8517 against the US dollar.

Rosnani also conceded that naturally, with lower output from local manufacturers, Malaysia’s exports will be affected as well.

“The manufacturers cannot export as much as before, not only because the volume they produce is lower, but demand from external markets is not as strong. The eurozone is struggling; Japan’s economy has not grown as expected,” she added.

An economist, who declined to be named, said the increment in the July PMI was weak, but if the trend could continue, he expects Malaysia’s economy to rebound earliest in the third quarter of 2015 (3Q15), or latest in 4Q15.

Bloomberg reported that the ringgit weakened by the most in four weeks, as data pointing to a contraction in Malaysia’s factory output dimmed the outlook for an economy reeling from falling oil prices and a political scandal.

The ringgit fell 0.8% to 3.8540 per US dollar, extending this year’s loss to 9.2%. Earlier, it reached 3.8542, the lowest level since September 1998, when it weakened to 3.9340. Twelve-month non-deliverable forwards dropped 0.7% to 4.0045, breaking through four for the first time since at least 2004.

 

This article first appeared in digitaledge Daily, on August 4, 2015.

      Print
      Text Size
      Share