Malaysian manufacturing returns to expansion mode

S&P Global PMI rises to 51.6 in April as new order growth hits eight-year high

Malaysia’s manufacturing sector reported a renewed increase in growth momentum at the start of the second quarter of 2022, with the seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) rising from 49.6 in March to 51.6 in April.

A reading above 50 indicates an overall increase compared with the previous month, and below 50 an overall decrease.

Athough output levels remained subdued, incoming orders recovered strongly to register the sharpest jump since April 2014 amid improved client confidence. Despite the increase in demand, manufacturers continued to reduce workforce numbers as international border restrictions hampered the ability of firms to hire from abroad. As a result, the rate of job losses quickened.

Businesses were concerned that sustained price and supply pressures had hampered operations, with material shortages and delivery delays widespread. This affected firms’ expectations regarding future output, which fell to the lowest since last August.

Looking at the historical relationship between the PMI and official statistics, the latest reading is representative of continued expansions in manufacturing production and gross domestic product (GDP), though the survey suggested that growth was again held back by sustained supply chain issues.

S&P Global chief business economist

Chris Williamson said there was a surge in demand for manufactured goods in April with producers reporting eight-year high inflow of new orders, reflecting a combination of improving sales at home and abroad.

Firms noted that stronger client confidence boosted demand in both domestic and external markets.

As a result, new export sales returned to expansion territory for the second time in three months, albeit only marginally.

April data suggested that output was scaled back for the fourth month running. However, the rate of moderation softened from March and was only mild.

The rate of inflation, meanwhile, eased from March but remained marked overall. Manufacturers partially passed these higher costs to clients through higher output charges, which increased steeply again.

“Concerns over supply chain delays have meanwhile been further fanned by lockdowns in China and the Ukraine war, leading to a pullback in business optimism about the outlook,” Williamson said.

“Supply constraints in terms of both labour and component availability remain a major headwind to the economic recovery and meant manufacturers and their suppliers were again unable to meet demand on average, which in turn put sustained upward pressure on prices,” he explained.

On prospects, Malaysian manufacturers remained optimistic on the year ahead for output amid hopes demand conditions would improve once the pandemic was under control globally. Expectations nevertheless dipped to an eight-month low, mainly on concerns that price rises and material shortages could continue to hinder production levels.