Local manufacturing sector takes a step back

> PMI for May dips to 48.7, but conditions worsened only modestly overall

PETALING JAYA: Malaysia’s manufacturing sector returned to negative territory in May, after registering its first net improvement over the past two years in April, due to lower new exports.

The headline Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) dipped below the 50 pointthreshold to 48.7 points in May, from 50.7 in the previous month. That said, the rate at which conditions worsened was only modest overall.

There were reports of lower new orders in nearby Asian economies in the latest period, including Singapore, Thailand and Indonesia, which led to the decline in total new business.

Output, new orders and purchasing activity all fell in May, which pointed a downturn in client demand. Both pre- and post-production inventories depleted, with firms highlighting efforts to streamline stocks amid subdued client demand.

“Simultaneous growth of production and new work in April had raised the prospect of an economic turnaround, but both returned to decline in May. Panellists reported weak demand both domestically and abroad, citing disappointing sales in nearby Asian economies,” said Paul Smith, senior economist of IHS Markit, which compiled the survey.

However, he noted there were some positives to take from May’s survey, with employment rising for the first time in four months and firms remained optimistic towards the 12-month outlook.

Higher sales, new projects and new product lines were expected to underpin output over the next 12 months.

That said, concerns regarding the state of the economy and client demand remained evident.

On the price front, both input costs and output charges rose more slowly in May. However, the respective rates of inflation were strong in the context of historical data, with companies citing the impact of adverse currency movements on import costs.