Manufacturing sector to dwindle in 2020
KUALA LUMPUR: Malaysia’s manufacturing sector is expected to dwindle in 2020 as downside risk remains high amid the ongoing Movement Control Order (MCO) and disruptions across the global manufacturing sector due to the Coronavirus Disease 2019 (Covid-19) outbreak.
Malaysia’s manufacturing Purchasing Managers’ Index (PMI) fell to 48.4 in March from 48.5 in February, trending lower for the third consecutive month, its lowest reading since September 2019.
According to IHS Markit, the continued decline in manufacturing PMI (below the 50 level mark) was due the fall in output, which dropped to its lowest level since June 2016, while new orders had also registered it sharpest decline since the survey began in July 2012.
Affin Hwang Investment Bank Bhd’s research team (AffinHwang Capital) noted that this is similar to other countries in Asia, as the Covid-19 outbreak had caused a drop in demand and restricted operating capacities amid delayed deliveries of inputs domestically.
In addition, it noted that export demand also suffered in March led by a broadbased decline in foreign sales weighed down by the outbreak.
Sentiment among manufacturers also took a hit, declining to its lowest level since January 2016, where over the next 12 months producers are now anticipating further reduction in production amid concerns over the outbreak having a long-lasting negative impact and expectations of sustained supply chain disruption.
“Moving forward, besides the disruption across the global manufacturing sector, we believe that the downside risk to Malaysia’s manufacturing PMI may likely continue, amid the ongoing Movement Control Order (MCO), which began on March 18 and will likely end on April 14, as certain producers which are classified under non-essential and some essential services will remained closed, and will continue to dampen new orders and output.
“Externally, we believe uncertainty in resumption of production will also be a drag to Malaysia’s manufacturing sector, where China is a main export market for Malaysia.
“The overall weaker demand from other countries and sustained global supply chain disruption amid the slowdown in economic activity in view of ongoing lockdowns and quarantines will also weigh on export sales,” it said.
In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) commented: “The economy is expected to remain gridlocked by tightened movement restrictions, hindering consumption activities and manufacturing production.
“With similar measures adopted across major trading partners, export orders would stand to endure further decline.”
Furthermore, with the public health measures remaining intact and open ended, AmInvestment Bank Bhd’s research team (AmBank Research) believe that the downside risk on Malaysia’s manufacturing activities is more likely to be felt from April onwards. It also pointed out that the impact would be felt in both the domestic and external fronts.
“How long the adverse impact on manufacturing will last depends on the duration of the MCO.
“Also, it remains to be seen how effective the monetary and fiscal stimulus measures will be, in particular in supporting SMEs, which include micro businesses as well as consumers, in particular those who have lost their daily wages and monthly income,” it added.
“What we are experiencing today is the issue of demand and supply simultaneously. It is unprecedented, and unlike the 2008 global financial crisis.
“Today, both manufacturing and services are being hurt by the virus impact,” it warned.
Externally, we believe uncertainty in resumption of production will also be a drag to Malaysia’s manufacturing sector, where China is a main export market for Malaysia.
AffinHwang Capital