PMI reaches highest index since Nov 2017 in spite of trade war, SST
KUCHING: Malaysia’s manufacturing Purchasing Managers’ Index ( PMI) rose for the second straight month, expanding from 51.2 in August to 51.5 in September, in spite of an escalating global trade war and a shift in Malaysia’s tax regime.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that the PMI reached the highest index level since November 2017, and that the sharp improvement during the month was reflected across the board, namely output, new orders, employment, suppliers’ delivery time and stock of purchases during the month.
According to IHS Markit, among the PMI components, the main factor that pushed PMI higher in September was due to strong employment, which was reported as the strongest performance since the first month of the survey conducted in July 2012.
“Meanwhile, output and new orders also continued to trend higher in September, albeit the implementation of the Sales and Service Tax ( SST), which already took effect beginning from September 1, 2018,” it said in a note yesterday.
“We believe growth in Malaysia’s domestic demand provided some support as well as better overseas new export orders.”
In July, Malaysia’s exports growth improved from 7.6 per cent year on year (y- o-y) in June to 9.4 per cent, led by higher demand for electrical & electronic goods ( E& E), which rose sharply by 23.6 per cent y- o-y in July.
On a quarterly basis, Malaysia’s manufacturing PMI averaged around 50.8 in the third quarter of 2018 (3Q18), significantly higher than 48.6 in 2Q18.
“Despite some uncertainties from the external environment, we expect the country’s real Gross Domestic Product (GDP) growth to improve from 4.5 per cent y- o-y in 2Q18 to around 5.0 to 5.2 per cent estimated for 3Q18,” it further said.
“The country’s full year GDP growth is expected to be around five per cent projected for 2018.”
Meanwhile, KenangaInvestment Bank Bhd ( Kenanga Research) said the latest PMI survey signals a possible growth improvement in 3Q18 in spite of escalating trade war and the adverse impact of SST.
“We believe this is partly to do with China’s move to reduce import tariffs on a range of consumer items to fulfil pledges to further open its consumer market,” it said in a separate note.
Average import tariffs will be reduced to 7.5 per cent in 2018 from 9.8 per cent in 2017 as part of its effort to promote balanced development of foreign trade with smaller trading partners.
“We see a significant opportunity for Malaysia’s export as China is the largest trading partner. In fact, we expect export growth to China to sustain an expansion of more than 30 per cent y- o-y in the succeeding months following July’s surge of 37.7 per cent.”
In September, Caixin China’s manufacturing PMI fell to the neutral level of 50, its weakest index in 16-month period. This may be resulted from an escalation of US-China trade war, which caused the China’s manufacturing sector to slow going into 2H18.
The report also noted that the business confidence has dropped to nine-month low, while export sales dropped at a faster rate. In the Asean region, manufacturing conditions in ASEAN grew at a slower pace, where the headline PMI slowed from 51 in August to 50.5 in September.
However, apart from Malaysia, countries in the region that have PMI indexes above the expansion level of 50 in September included Philippines ( 52), Vietnam ( 51.5), Indonesia (50.7) and Thailand (50). Nevertheless, Kenanga Research remained cautious with the latest development in the global economy as emerging market now faces the double whammy of a weak currency and high oil prices, although the latter would benefit Malaysia.
“Hence, we maintain our view that GDP growth to moderate in the second half of 2018 to 4.7 per cent from 4.9 in 1H18, resulting our whole year 2018 growth forecast to slow to 4.8 per cent from 5.9 in 2017.”