KUALA LUMPUR (July 3): Operating conditions in the Malaysian manufacturing sector moderated further at the midway point of 2023.

In a statement on Monday (July 3), S&P Global Market Intelligence said that output levels were scaled back at a solid pace amid the strongest moderation in new orders since January.

It said firms often associated the slowdown to subdued demand and economic conditions in domestic and global economies.

Concurrently, firms noted a third consecutive acceleration in input price inflation which reached the highest level in four months.

Concerns regarding the duration of the slowdown and the timing of an eventual recovery weighed on manufacturers in June, as business optimism softened to its lowest level in nearly two years.

The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index fell slightly from 47.8 in May to 47.7 in June to indicate a tenth consecutive moderation in operating conditions that was the strongest since January.

The latest reading suggests that the weaker trends in official data for manufacturing production and GDP were sustained throughout the second quarter of the year.

The weaker headline figure was in part due to a sustained slowdown in new order inflows that was the tenth in as many months.

The moderation was solid and the strongest recorded since the start of the year as firms noted muted demand and client confidence in both domestic and international markets.

As such, export demand for Malaysian manufactured goods fell further and at the steepest rate for four months.

Muted demand contributed to a broadly similar moderation in production volumes than had been seen in May.

Firms often attributed softer output to subdued incoming orders.

There were reports that manufacturers looked to clear backlogs of work in June, an attempt that was successful as outstanding business decreased solidly again over the month.

That said, the pace of depletion was the softest since March.

Contracts were often fulfilled using stocks of finished goods, which were depleted for the twelfth consecutive month.

The lack of pressure on capacity however, contributed to firms reducing employment levels for the second successive month in June, with staffing levels scaled back to the greatest extent seen this year so far.

In line with the trends for output and new orders, manufacturers posted a continued moderation in purchasing activity, extending the current sequence to ten months.

The pace of reduction was moderate and the quickest seen since January.

This also came as average lead times shortened only marginally and to the lowest extent in six months as better material availability was partially offset by reported logistical issues. In turn, firms utilised subdued demand conditions to wind down stocks of inputs to the greatest extent since August 2021.

S&P Global Market Intelligence economist Usamah Bhatti said there were further signs in June that business conditions in the Malaysia’s manufacturing sector remained subdued, thereby holding back production and demand.

"While operations are still being helped by an improved supply chain environment, inflationary pressures are showing signs of increasing, given a third consecutive acceleration in inflation of average cost burdens.

"Nonetheless, muted demand conditions are weighing on the confidence of manufacturers, as the overall degree of optimism dipped to a 23-month low amid concerns regarding the timing of a demand recovery and how long the current malaise will last,” said Bhatti.