Saturday 24 Feb 2024
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KUALA LUMPUR (Aug 1):  The Malaysian manufacturing sector moderated further at the start of the third quarter of 2023 (3Q2023), with indications from firms that demand remained subdued.

In a statement on Tuesday (Aug 1), S&P Global Market Intelligence said order books were scaled back to the greatest extent in six months, amid sustained weakness in client confidence.

It said that as a result, production levels also remained muted. In response to weakened market conditions, manufacturers opted to reduce their workforces for the third consecutive month.

The rate of job shedding was only marginal, yet the steepest recorded since December.

Anecdotal evidence suggested that the reduction was in part due to increased cost burdens during July.

As such, Malaysian goods producers signalled that input price inflation accelerated for the fourth month in a row, to reach the highest since February.

The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) posted 47.8 in July, up slightly from 47.7 in June.

S&P Global Market said the latest reading pointed to a sustained slowdown in business conditions that was broadly in line with that seen on average over the second quarter of the year.

The latest PMI reading is consistent with sustained expansions in both manufacturing production and GDP (gross domestic product), although there are signs that growth has dampened somewhat since the start of the year.

The strongest contributor to the sub-50.0 reading in July was a solid reduction in new order volumes.

Demand has now moderated in each of the last 11 months, with the latest slowdown being the most marked since January.

A number of firms noted that client confidence remained subdued in both domestic and international markets.

Notably, the rate of moderation in new export orders quickened to the fastest since May 2020.

Meanwhile, production volumes were scaled back for the twelfth month running in July.

The rate of reduction was broadly similar to those seen in May and June, as survey respondents reported that drops in output were reflective of relatively muted demand conditions.

S&P Global Market said July data was indicative of a third consecutive fall in workforce numbers at Malaysian manufacturers, albeit one that was marginal overall.

That said, the rate of job shedding was the most marked since the end of last year.

Where a decrease in employment levels was reported, companies commonly linked this to the non-replacement of voluntary leavers.

Moreover, firms signalled that they had sufficient capacity to work through existing orders amid subdued demand, as evidenced by a further fall in backlogs of work that was the quickest for three months.

On the price front, average cost burdens rose at a modest pace, extending the current sequence of rising prices to 38 months.

Although below the series average, the rate of inflation accelerated for the fourth month running to reach the highest since February.

Survey members mentioned that raw material prices continued to rise amid the exchange rate weakness.

Firms meanwhile reported that prices charged for goods were unchanged on the month however, as some panellists signalled that selling prices were reduced in order to stimulate demand.

Suppliers' delivery times were broadly unchanged in July, thereby ending a six-month sequence of shortening lead times.

Subdued operating conditions also reportedly led firms to scale back input buying, in line with production requirements.

Both pre- and post-production inventories also moderated in the latest survey period.

Malaysian manufacturers remained hopeful that demand conditions would normalise over the coming 12 months, as indicated by the twenty-fifth consecutive month of optimism regarding future output.

Sentiment was relatively muted, however, and eased to the weakest in the current sequence of optimism.

S&P Global Market economist Usamah Bhatti said the Malaysian manufacturing sector continued to indicate sustained weakness in operating conditions in July, according to the latest PMI data.

“New order intakes moderated to the greatest extent for six months, while production levels continued to be scaled back at a solid pace, indicating that the sector still has some way to go before demand recovers fully.

“Firms also noted concern on the price front, as input price inflation accelerated for the fourth month in a row to reach the highest since February.

“In an effort to limit cost pressures, firms looked to reduce workforce numbers, with the latest moderation (being) the sharpest since the end of last year,” said Bhatti.

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