Malaysia’s manufacturing PMI recovery speed slows but still on track
KUCHING: Malaysia saw marginal recovery in its manufacturing Purchasing Managers Index ( PMI) but analysts believe that it is still too early to write off suggest that recovery has stalled.
The research arm of Kenanga Investment Bank Bhd ( Kenanga Research) in a report, pointed out that despite speed bumps in Malaysia’s PMI growth, it continues to expect an upturn in the sector.
Of note, Malaysia’s manufacturing PMI saw an increase to 49.5 in March from 49.4 in February but was dampened by a slightly faster contraction in new orders.
According to the research arm, March’s reading is the second consecutive month in a row of improving output and is at its highest since May 2015.
However, Kenanga Research was upbeat about the increase in ouput as it was an indication of pockets of confidence among manufacturers for a recovery down the line as improvements in the output sub-index and inventory accumulation were also observed.
Nevertheless, it pointed out that the development was highly contrasted with a falling in new orders on both the domestic and international front, leading to the 25th consecutive month of deterioration of new orders with a slight elevated decline compared to the previous month.
The faster contraction in new orders led to most of March’s increased output to be translated into inventories instead.
Additionally, employment in manufacturing remained f lat despite some reported labour shortages that were reflected in a continued increased of work backlog.
“This may suggest a lack of conviction among manufacturers for a strong recovery momentum given continued weakness in sales trend.
“Furthermore, with weak demand and production largely flowing into inventories, there are looming threats that Malaysia’s recovery momentum may hit a snag before picking up pace,” explained the research arm.
Overall, Kenanga Research expected a manufacturing sector upturn in the second half of the year (2Q17) which would lend support to the sector’s gross domestic product (GDP) contribution in the first half (1H17) which is forecasted at 4.9 per cent.
“Moreover, with Malaysia’s regional neighbours seeing improving business conditions, we believe that it will only be a matter of time when Malaysia sees similar improvements in new orders, and by extension, prompting an improvement in the employment subindex,” the research arm said.