Weak exports weigh on January manufacturing

IHS Markit Malaysia PMI dips to 48.8 from 50.0 in December, as orders drop for first time in three months

PETALING JAYA: The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) recorded 48.8 in January 2020, down from 50.0 in the previous month, dragged down by export orders which declined for the first time in three months.

Some survey respondents reported an ongoing tough global trading environment at the start of the year. As a result, total order book volumes were adversely impacted to the greatest extent since September.

The current PMI reading is indicative of annual gross domestic product (GDP) growth of 5%, representing a slight moderation compared with the end of last year. Although the headline measure fell, it remained above the average seen for 2019.

Nevertheless, companies remained strongly optimistic towards output volumes over the coming 12 months, with output expectations remaining above their historical average.

According to anecdotal evidence, forecasts of stronger demand, supportive state policies and planned expansion into foreign markets following “phase one” of the US-China trade deal were mentioned as positive factors.

Survey data showed a slight drop in staffing numbers in January. Where a reduction in employment was registered, firms mainly linked this to voluntary leavers and already-sufficient employee counts. Some companies also reported increased efforts to contain costs.

Evidence of satisfactory operating capacities was seen in backlogs of work data, which showed a sharper drop in outstanding business. Unfinished orders were completed as Malaysian manufacturers aimed to meet client demand in a timely fashion.

IHS Markit said there were diverging trends regarding prices in January. Input cost pressures intensified, with the rate of increase hitting a five-month high. Increased import prices, material shortages and suppliers ramping up their charges were mentioned by firms. However, greater operating expenses were primarily absorbed as output charges declined fractionally in January.

Commenting on the latest survey results, IHS Markit chief business economist Chris Williamson said Malaysia’s manufacturers started 2020 on a softer footing as much of the renewed weakness was a function of deteriorating external demand, with export orders under further pressure as a result of slower growth in key trading partners.

“Even after allowing for usual seasonal variations, business trends can be volatile around the year-end, so we don’t recommend reading too much into one month’s data. More importantly, the past four months have seen the strongest PMI readings since 2018, which corresponds with an easing of global trade tensions in recent months.”