PETALING JAYA: China’s record-low manufacturing data in February has intensified concerns about the potential impact of the Covid-19 outbreak on the Malaysian economy, particularly in the first quarter.
China, Malaysia’s largest trading partner, announced over the weekend that manufacturing Purchasing Managers Index (PMI) had slowed to 35.7, against analyst expectations of 45.0 in a Bloomberg poll.
The country’s PMI had earlier fallen to 50.0 in January.
China’s Caixin manufacturing PMI also fell to 40.3, its steepest decline in 11 years from 51.5 in January due to the shutdown of factories and festive holidays.
In Malaysia, the manufacturing sector is already feeling the impact, with the headline IHS Markit Malaysia Manufacturing PM falling to 48.5 in February, from 48.8 in January as supply-side disruptions heavily impacted business operations.
A reading below the 50 mark points to a contraction in the sector’s activity, while a figure above 50 indicates an epansion.
UOB Research senior economist Julia Goh told Starbiz she expects Malaysia’s Q1 performance “to be hit hard”, given that the spread of the virus continues with a spike in cases outside China.
“China’s factories are still slow to reopen and economic activity below normal operations.
“As the virus spreads to other key manufacturing centres including South Korea, the potential to hit foreign demand and supply chains could dampen a recovery is rising, ” she said.
The extent of the impact on the overall Malaysian economy, she said, would depend on the implementation and effectiveness of the RM20bil economic stimulus package announced by the government last week.
IHS Markit, in a statement yesterday, noted that Malaysia’s manufacturing sector faced a challenging month in February as the delivery of key raw materials from China was disrupted by the coronavirus outbreak.
It said overseas demand was also adversely impacted, causing new export orders to fall at the steepest rate in over seven years.
IHS Markit’s chief business economist Chris Williamson, however, believes that the worst of the supply shortages may be over.
“Much of course depends on how long the Covid-19 outbreak persists, but with China’s factories returning to work there’s a good chance the worst of the supply shortages are over, ” he said.
Affin Hwang Capital Research chief economist Alan Tan noted that Malaysia’s PMI was the lowest registered among the Asean-5 countries since January 2020.
“We believe that the drop in Malaysia’s manufacturing PMI may be prolonged in the near term, especially in Q1’20, due to slower momentum based on tepid overseas demand and global supply chain disruptions, ” he said in a note.
Tan said they were also concerned that the prolonged outbreak could translate into a further decline in export sales with China being a main overseas market for Malaysia. Malaysia’s exports to China have grown rapidly over the last few years, with China’s share of Malaysian exports rising from 3.1% in 2000 to 14.1% currently.
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