PETALING JAYA: Malaysia’s manufacturing sector continued to contract in October amid a challenging business environment and weak demand conditions.
The latest survey from S&P Global showed Malaysia’s seasonally adjusted manufacturing purchasing managers’ index (PMI) in October stood at 46.8 points, unchanged from the September reading.
The October reading also marked the 15th consecutive month of decline, with the PMI staying below the 50-point mark that separates expansion from contraction.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the latest PMI data showed manufacturers were generally pessimistic about the outlook for their businesses.
“The new orders and production have been scaled back, according to the survey, suggesting that manufacturers will be mindful of their labour-hiring decisions and capital spending.
Thus far, the focus among manufacturers is on finishing their backlog of orders,” Mohd Afzanizam said.
“On that note, the manufacturing sector will remain guarded as it also needs to contend with higher operating costs,” he added.
Mohd Afzanizam said, as such, government policies should be directed at promoting domestic demand that will cushion the external impacts on the country’s economy. “Apart from that, efforts are should be directed towards how the weak ringgit could turn into more business opportunities, such as attracting foreign tourists, events and conferences, that could lead to livelier economic activity,” he noted.
S&P Global in its survey yesterday said there were still hopes that the demand environment would improve over the next 12 months, and this supported confidence in the outlook for production in Malaysia.
Despite the challenging business environment, optimism picked up to a six-month high, it said, noting around 19% of respondents predicted growth of output, while 8% were pessimistic.
S&P Global pointed out that the historical relationship between the PMI and official gross domestic product (GDP) data suggests that GDP is still set to improve modestly moving into the final quarter of 2023.
Looking at official data on manufacturing production, however, the PMI readings are indicative of stagnation on a year-on-year basis, it said.
“The latest S&P Global Malaysia manufacturing PMI suggests that firms continued to struggle against the backdrop of demand weakness, both at home and abroad.
The ongoing depletion of backlogs of work in order to support output reached its peak in October, with outstanding business cleared at an unprecedented pace.
“We will therefore need to see greater inflows of new work in the months ahead if manufacturers are to be able to maintain production schedules,” said S&P Global Market Intelligence economics director Andrew Harker.
“There were further signs of a pick up in cost inflation in October, but we are still not seeing prices increase at anything like the pace we did in the three years following the Covid-19 pandemic.
In fact, with demand remaining muted, firms raised their own selling prices only slightly over the month,” he added.
Meanwhile, an analyst with a local brokerage noted the latest PMI reading suggested economic conditions in Malaysia would remain subdued going into the final quarter of the year.
“The weakness in the manufacturing sector, which is an important driver of Malaysia’s economy, could exert pressure on other areas of the economy,” he said.
“This calls for proactive measures, and effective execution of these initiatives, to stimulate the country’s economy in the current challenging environment,” he added.
Source: https://www.thestar.com.my/business/business-news/2023/11/02/challenging-business-environment-remains