KUALA LUMPUR (Jan 2): Latest data signalled further subdued trends across the Malaysian manufacturing sector at the end of 2023.

In a statement on Tuesday, S&P Global Market Intelligence said that demand generally remained muted, leading firms to scale back production, amid limited new order inflows.

That said, the firm said the rate of moderation in output was the softest since August.

Despite weak demand, firms opted to take on additional staff for the first time in eight months during December, albeit only fractionally.

At the same time, input price inflation eased for the first time in three months, and was the weakest recorded since September.

The seasonally adjusted S&P Global Malaysia manufacturing purchasing managers index (PMI) was unchanged at 47.9 in December, indicating that business conditions remained challenging for manufacturing firms.

The latest PMI data suggested that gross domestic product growth was running at a similar level to that seen in the second and third quarters of the year, as well as pointing to modest year-on-year improvements in official manufacturing production data.

Manufacturers often noted that demand in the sector remained subdued during December, with reports of weak customer confidence.

As a result, total new business moderated for the 16th successive month, though the rate of reduction was little changed from November.

Demand conditions in international markets also eased, with new export orders falling for the eighth month in a row, but at the softest rate since May.

With customer demand remaining muted, manufacturers scaled back production for the 17th month running.

That said, the moderation was the slowest recorded since August.

Meanwhile, stocks of finished goods were wound down at the fastest pace since September, as firms used existing stocks to fulfil orders.

Despite weak market conditions, Malaysian manufacturers raised employment levels for the first time in eight months in December.

The pace of job creation was only fractional business at a marginal pace that was the softest since August 2022.

For the first time in three months, the rate of input cost inflation eased in the Malaysian manufacturing sector.

The latest increase remained solid, but was the slowest since September and below the long-run series average.

Firms continued to report high raw material prices, notably due to exchange rate weakness. In response, output charges were raised further, though the rate of inflation has been modest and broadly stable for the past four months.

In line with the trend for output and new orders, purchasing activity continued to be scaled back, as the muted picture for new business deterred firms from buying additional inputs.

In turn, stocks of purchases also decreased, albeit at the softest pace since July.

There was a further deterioration in vendor performance in the latest survey period.

The extent to which delivery times lengthened was the least marked for three months and only fractional.

Where delivery times increased, firms often mentioned raw material shortages.

Hopes that new orders will return to growth supported confidence that production will rise over the coming 12 months.

That said, the current subdued demand environment meant that the degree of optimism had remained broadly stable since September amid concerns regarding the pace and timing of a recovery.

S&P Global Market Intelligence economist Usamah Bhatti said despite the latest PMI data suggesting that demand conditions in the Malaysian manufacturing sector remained subdued at the end of 2023, the data was still consistent with modest growth in the official statistics.

"That said, evidence is pointing to demand conditions staying muted in the coming months, given the sustained moderation in production and new business inflows.

“There was also evidence that firms increasingly utilised existing stocks of finished items to complete orders.

"Positively, input prices rose at a softer pace for the first time in three months during December, which contributed to only a modest increase in output charges. As such, price increases were less pronounced than the respective series averages,” said Bhatti.