Manufacturing PMI sees 21 months of contraction
As a result, buying activity was scaled back and production fell for the 21st consecutive month.
KUCHING: The Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) remained unchanged at 47.1 in December, marking its 21st consecutive month of contraction as indicated by the sub-50.0 reading.
These disappointing readings came despite the global PMI along with the index of most major economies showing strong and sustained manufacturing performances.
The global PMI reading in December rose to 52.7 from 52.1 in November, indicating healthy economic expansion.
Similarly, China being the largest trading partner for Malaysia in recent times, also showcased improving manufacturing performances with its Caixin China manufacturing PMI climbing to 51.9 from 50.9.
According to the research arm of Affin Hwang Investment Bank Bhd (AffinHwang Capital), noted that Malaysia’s continued sub-50.0 PMI reading in contrast to the improvements in regional and global PMI, was indicative of continued challenging operating conditions for manufacturing industries in the fourth quarter of 2016 (4Q16).
Citing a recent survey by IHS Markit on Malaysia that indicated only 13 per cent of Malaysian manufacturers had registered an expansion in new work inflows, the research arm explained that the weak PMI was mostly attributed to a decline in domestic and international demand as new
AffinHwang Capital
export orders have been sharply plunging since June, 2016.
“As a result, buying activity was scaled back and production fell for the 21st consecutive month,” the research arm rationalised.
The research arm went on further to point out that the rising cost burdens on businesses were also reflected in the latest release of Malaysia’s producer price index (PPI), which saw a 2.2 per cent increase year over year (yo-y) in November, 2016.
“With the lapse of the AntiProfiteering Mechanism in December 2016, we may see the costs being passed through to households, leading to some infl ationary pressure,” opined the research arm.
Looking ahead, Affin Capital theorises that the electrical and electronic (E&E) segment is likely to be the star of the manufacturing industry in the coming quarters as the Semiconductor Industry Association (SIA) has projected that global semiconductor sales are projected to expand at a healthy pace this year.
“Furthermore, a weaker ringgit may also serve to improve Malaysia’s export competitiveness, while economic stability in China and potentially rising economic activity through fiscal stimulus in the US may also support demand for imported goods, benefitting exports of the Asean countries,” added the research arm.
Taking into consideration all the relevant factors, industry analysts have conferred that there will be a recovery in the manufacturing sector in the year ahead, albeit one that is gradual and modest at best.
Affin Hwang Capital anticipated Malaysia’s manufacturing gross domestic product (GDP) growth to improve from an estimated 4.3 per cent in 2016 to 4.5 per cent in 2017, while the research arm of Kenanga Investment Bank Bhd estimates an improvement from 4.3 per cent to 4.7 per cent instead.
Nevertheless, there are downside risks to these forecasts as Kenanga research points out that volatile consumer spending constrained by our abnormally high household debt are key factors that could drag down domestic demands, while uncertain global economic conditions may affect global demands.