Malaysia’s operating conditions in manufacturing sector deteriorates at slower pace in January

The operating conditions in Malaysia’s manufacturing sector deteriorated at a slower pace in January, indicating that the manufacturing sector had come through the worst of its downturn. The headline Nikkei Malaysia manufacturing PMI index rose to 48.6 in January from 47.1 in December, hinting at a slower decline in operating conditions. The January reading was the highest in 20 months.

The pace of contraction in production decelerated in the month that helped in easing the overall fall in operating conditions. The pace of decrease was the weakest since May 2015. Where output dropped, survey respondents stated a lack of new work inflows and weak demand conditions. A weaker drop in production was matched by a subdued drop in total new orders. The pace of the drop slowed to a four-month low; however, it was consistent with the average seen in the present 23-month sequence of contraction.

Data implied that a decline in domestic demand was the main reason for the fall in total new orders as international demand grew slightly. New export orders rose in January for the first time in eight months. Companies attributed this to the weakness of the Malaysian ringgit assisting in stimulating global competitiveness. But the pace of expansion was just slight.

Meanwhile, employment in the sector stayed in the expansion territory for the fifth straight month. However, the pace of job creation slowed further and was just marginal. Even if the weak ringgit aided in stimulating exports, it continued to put upward pressures on cost burdens, with input prices rising at the most rapid rate in the series history. On the contrary, prices charged rose that the sharpest pace since May 2016.

Business confidence rose to a four-month high at the beginning of 2017. Expectations of stronger demand conditions and new product launches were the reasons behind the sentiment. But the extent of optimism was still quite weaker than the long-run series average.