KUALA LUMPUR (Sept 2): Malaysia’s manufacturing activities remained muted in August amid subdued demand, while latest data suggested that the coming months are also likely to remain soft, S&P Global said on Monday.

The seasonally adjusted Malaysian manufacturing purchasing managers index (PMI) was unchanged at 49.7 in August, according to S&P which compiled the survey. A reading above 50 indicates expansion in manufacturing activity, while a reading below 50 points to contraction in the sector.

The latest reading also pointed to Malaysia’s economy expanding in the third quarter at “a broadly similar rate” to that seen in the second quarter, S&P said.

"However, further evidence was provided to indicate that conditions are likely to remain subdued in the short term,” said S&P economist Usamah Bhatti. “Firms opted to work through existing orders in the absence of new order growth, while they also scaled back purchases, employment and stock holdings.”

In August, demand remained generally weak, prompting firms to reduce production at the steepest rate in four months.

Survey data suggested that the coming months will likely remain muted, as manufacturers cut back on purchasing activity and reduce stocks of purchases and finished goods due to a lack of new orders.

When it comes to employment, manufacturers reported a slight decline for the second consecutive month, signalling sufficient capacity to cater to the outstanding business, which fell to its largest extent since April.

Firms surveyed by S&P also noted a marked rate of input cost inflation midway through the third quarter, citing rise in raw material prices, especially those sourced from abroad, due to exchange rate weakness.

In response, production charges were raised for the fifth month in a row, with both input and output prices increasing at their highest pace since September 2022, S&P said.

Still, manufacturers are hoping that new orders will return to growth territory, supporting confidence that production will rise over the coming 12 months. The overall degree of optimism was “solid but weaker” than the long-run series average, S&P noted.

“That said, firms mentioned that they remained unsure regarding the speed of the recovery, with downside risks centred around a muted global economy,” Bhatti commented.