PETALING JAYA: Talks of economic slowdown aside, Malaysia’s manufacturing production for December 2019 has shown its best performance in 15 months after steadily rising for four straight months.
The country’s Purchasing Managers’ Index (PMI), an indicator produced by IHS Markit on manufacturing activities, increased to 50 index points in December, as compared to 49.5 in November.
For context, the PMI has consistently ticked up every month from 47.4 in August this year.
A PMI above 50 represents an expansion when compared with the previous month, while a PMI reading under 50 represents a contraction.
For the fourth quarter of 2019, the headline PMI recorded its highest average since the third quarter of 2018, suggesting that economic growth has accelerated into the year end.
Malaysia’s latest PMI reading of 50 is indicative of annual economic growth of approximately 5.5% and manufacturing expansion of about 6%, according to IHS Markit.
Generally, in the case of Malaysia, the headline PMI and annual GDP growth rates show a reasonably high correlation of 60%.
“Malaysia’s manufacturers move into 2020 reporting increasingly brighter business conditions, having ended 2019 with their best performance for over a year.
“Whether expectations of faster growth in 2020 materialise will likely depend on global trade developments and ongoing uncertainty in relation to trade wars, meaning firms continue to focus on keeping costs low.
“But any further improvements in the news flow regarding trade will hopefully spur faster growth and boost risk appetite in 2020 after what has been the weakest PMI performance for three years in 2019, matching a similar slowdown in the global economy.” according to IHS Markit chief business economist Chris Williamson.
The PMI survey respondents’ output expectations for the next 12 months were strongly optimistic in December, with the degree of confidence running among the strongest seen over the past six years.
IHS Markit pointed out that the PMI survey respondents in Malaysia have mentioned successful project tenders and greater sales to existing clients.
Nevertheless, weakness across international markets remained evident as new export orders stagnated in December. Companies attributed the slowdown to unfavourable conditions across key trade destinations.
“Malaysian manufacturers indicated that operating capacities were sufficient to cope with current workloads as backlogs declined in December for a sixteenth successive month. Consequently, employment levels were left broadly unchanged.
“While a number of companies reduced payroll numbers in order to contain costs, some boosted hiring in line with greater output, ” stated IHS Markit in a statement issued yesterday.
Meanwhile, the latest PMI survey data also showed stronger inflationary pressures across the Malaysian manufacturing sector.
Input costs have increased at a faster rate amid reports of higher commodity prices and unfavourable exchange rates.
“However, firms passed on higher cost burdens through output charges, which rose for the first time in three months, indicating confidence in clients’ purchasing power, ” IHS Markit said.
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