KUALA LUMPUR (July 1): The health of the Malaysian manufacturing sector was broadly stable at the end of the second quarter of the year.

In a statement on Monday, S&P Global Market Intelligence said new orders increased for the second month running, in part thanks to a rise in exports, but overall demand remained subdued.

It said that as such, firms scaled back production slightly following a rise in May and left staffing levels unchanged.

Business confidence slipped to a 10-month low.

There was also stability in the pace of input cost inflation, with prices up solidly again.

Meanwhile, firms raised their own charges at an accelerated pace, which was the fastest since September 2022.

The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) posted 49.9 in June.

Coming in broadly in line with the 50.0 no-change mark, the index signalled largely stable business conditions over the course of the month.

This was a less positive picture than seen in May, however, when operating conditions improved marginally (PMI at 50.2).

The average reading for the second quarter of the year was the highest since the third quarter of 2022, thus boding well for an improvement in economic growth over the quarter.

The data also suggested that the recent solid expansion signalled by official manufacturing production data has been sustained beyond April.

New orders increased for the second consecutive month in June, but reports from panellists that demand remained muted meant that the rate of expansion was only fractional and softer than that seen in May.

The increase in overall new business in part reflected the sustained growth of new export orders, which rose for the third month running.

Firms reported higher new orders from customers in a range of Asia Pacific destinations, including Australia, the Philippines and Vietnam.

Manufacturers kept their staffing levels unchanged, following a marginal increase in employment in the previous survey period.

Firms were generally happy to keep employment numbers constant, given a general lack of pressure on capacity.

Backlogs of work decreased for the 25th month in a row, although the growth of new orders meant that the pace of depletion was only marginal and the softest since February.

Manufacturers also showed little appetite to hold extra items in stock at the midway point of the year.

Purchasing activity, stocks of inputs and post-production inventories were all scaled back during June.

Higher raw material costs and unfavourable exchange rate fluctuations resulted in a further increase in input prices.

The rate of inflation was solid and unchanged from that seen in May.

While the pace of cost inflation was stable, the rate at which firms increased their own selling prices quickened and was the fastest since September 2022.

New order growth is expected to be sustained over the coming year, supporting optimism regarding the outlook for manufacturing production.

That said, sentiment dropped for the fifth consecutive month in June and was the lowest since August 2023.

S&P Global Market Intelligence economics director Andrew Harker said June was largely a month of stability for Malaysian manufacturers, following on from the growth seen in May.

He said that encouragingly, firms were again able to bring in greater volumes of new work, but there were still some reports of demand remaining muted.

“As such, manufacturers were happy to keep their output and employment levels unchanged.

"Cost inflation was also stable, although firms were more willing to raise their own selling prices than has been the case for some time.

"Taking the second quarter as a whole, the PMI data have represented an improvement relative to the opening part of the year, boding well for upcoming official data prints,” said Harker.