Uncertainty continues to weigh on nation’s PMI
KUCHING: Malaysia’s manufacturing Purchasing Managers Index ( PMI) fell for the fourth consecutive month to 48.5 in October from 49.0 in September, decreasing below the 50-level expansionary level for the third month in a row.
The team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) said the continued deterioration in the country’s manufacturing PMI was due partly to lower new orders and production, which may be attributed to the reintroduction and extension of the Conditional Movement Control Order (CMCO) in Selangor, KL, Putrajaya and Sabah, effective from October 14 to November 9.
“We believe the enforcement of CMCO in these states may have caused some scaling back in production, while new export orders also declined due to some trade disruption caused by the pandemic in the region,” it said in its analysis yesterday.
“Besides that, there was a fall in backlogs of work due to lower new orders, which had resulted in a further fall in employment although the rate of job cuts had eased from the survey record in August.”
It was also noted that firms were reluctant to increase purchases and hold inventories due to weak demand from uncertain external environment, hence stocks of purchases and finished goods were depleted.
In contrast, based on forward looking sentiment, AffinHwang Capital saw that manufacturers remained confident over the next 12 months despite easing from its nine-month high in September as firms predicted improvements in output with expectations of a recovery in market demand.
“This optimism may be reflected in Malaysia’s exports to China, which rose sharply by 41.9 per cent year on year (y- o-y) in September (20.9 per cent in August), supported by higher demand for iron and steel products, electrical and electronic (E&E) products, palm oil and palm oil-based agriculture products,” it observed.
“In particular, China’s General Manufacturing PMI manufacturing sector rose to 53.6 in October from 53.0 in September, its highest reading since January 2011, boosted by the increase in output and total new work despite the ease in new export sales.”
Meanwhile, among Asean countries, Thailand rose for the sixth consecutive month to 50.8 in October from 49.9 in September, its first reading above 50 since December 2019 supported by higher production and new orders.
In Indonesia, the PMI in October also increased to 47.8 from 47.2 in September, remaining in the contractionary region for the second month in a row due to a decline in output and new orders.
“We believe the Asean region’s manufacturing PMI will benefit from the recovery in China’s economy,” the research firm continued. “Global Manufacturing PMI also rose to 53 in October from 52.4 in September at its highest level since May 2018.
“Domestically, IHS Markit guided that the historical comparison between PMI and GDP suggests a sustained rise in GDP at the beginning of 4Q20. However, it noted that manufacturing output appears to be weakening in October after the implementation of CMCO in some states, which will continue to be the headwind for the manufacturing sector.
“There are concerns that if Covid-19 cases in our export markets also continue to rise, this will affect external demand for Malaysia’s manufactured output, which may drag the ongoing healthy demand for E&E products.
“In 3Q20, based on the quarterly exports and production figures, we expect Malaysia’s real GDP growth to decline at a slower pace of about minus 2.5 to minus 3.0 per cent y- o-y from minus 17.1 per cent in 2Q20.”