‘DECLINE LIKELY TO PERSIST’

Kenanga expects waning global demand to weaken Malaysia’s exports

ADETERIORATION in manufacturing activity is expected to persist in the near term due to a slowdown in China’s economy and uncertainty in the United States-China trade talks.

Kenanga Research said this is despite both countries having shown positive progress in ending the trade war.

“Purchasing activity declined as lacklustre business environment prompted lower input buying. Consequently, production output fell but the rate of contraction has eased since December. Additionally, stocks of manufactured goods were used to clear outstanding orders, leading to a scaledown in inventories,” it said in a note yesterday.

On Monday, IHS Markit said the Nikkei Malaysia Manufacturing Purchasing Managers Index (PMI) continued its downtrend for the fourth straight month in January, associated with a decrease in output and new business while export sales dropped due to weak demand from China, Japan and South Korea.

Although the PMI edged higher to 47.9 last month, readings below 50 indicate a decline in manufacturing activity.

Kenanga expects inflation to remain modest and projects the Consumer Price Index at 1.0 to 1.5 per cent this year (2018: 1.0 per cent) due to weaker global growth and lower crude oil prices.

“The latter (lower crude oil prices) will partially offset inflationary pressure emanating from cost-push inflation due to the flotation of domestic fuel prices in the second quarter of this year and low base effect arising from the tax holiday period last year.

“Meanwhile, firms will continue to raise prices mainly because of the increase in labour cost following the implementation of the new minimum wage rate,” it said.

Kenanga said with global demand and commodity prices waning, Malaysia’s manufacturing activity and exports are expected to remain weak.

Hence, it said a slower growth trajectory would be more realistic this year, in line with its gross domestic product growth projection of 4.7 per cent.