In July, Malaysia’s manufacturing sector experienced a slight moderation, indicated by a dip in the seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) from 49.9 in June to 49.7. This marks a fractional decline in the health of the sector, driven by muted demand conditions.
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Domestic vs. International Demand
New orders within the domestic market eased for the first time in three months, reflecting weak demand. However, international markets showed growth for the fourth consecutive month, with export orders increasing, particularly from the Asia and Oceania regions. This divergence suggests a stronger demand overseas compared to the domestic market.
Production and Employment
Production levels softened, experiencing the greatest reduction in three months, though the decline was modest. Employment also saw a slight decline as firms chose not to replace voluntary leavers, resulting in the first job shedding in four months. Additionally, backlogs of work increased for the first time since May 2022, due to higher export demand and reduced workforce capacity.
Inflationary Pressures
Input cost inflation reached an eight-month high, leading to the steepest rise in output prices since September 2022. This increase in costs reflects ongoing inflationary pressures within the sector.
Economic Outlook
Despite the slowdown, the historical relationship between the PMI and official GDP data suggests continued growth in the second quarter of 2024. However, the data also indicate a slight slowdown in the rate of increase in official manufacturing production on an annual basis.
Manufacturing: Export demand
According to Usamah Bhatti, Economist at S&P Global Market Intelligence, the sector remains under pressure with a subdued domestic environment. Nonetheless, improved export demand and rising outstanding business have provided some relief. Inflationary pressures remain a concern, with rising input and output prices.
Source: S&P
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