Manufacturing likely to remain under pressure

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PETALING JAYA: The country’s manufacturing sector is expected to remain under pressure through the second half of 2021 (H2’21) due to uncertainties arising from the high number of Covid-19 cases and the movement restriction measures.

The headline IHS Markit Malaysia manufacturing Purchasing Managers’ Index (PMI) remained in the contraction region of below 50 for the third consecutive month in August, with a reading of 43.4 points, an improvement from 40.1 points in July.

AmBank Research noted the latest reading was well within expectation as manufacturers were impacted by uncertainties arising from Covid-19 cases and the measures taken, plus domestic challenges and external demand.

“The poor reading was due to a continued drag in output following weak demand with the rise in unemployment as well as shortages of inputs as a result of the movement control order (MCO)-induced disruption. New orders, which include exports, also fell,” according to the research house.

The headline IHS Markit Malaysia manufacturing Purchasing Managers’ Index (PMI) remained in the contraction region of below 50 for the third consecutive month in August, with a reading of 43.4 points, an improvement from 40.1 points in July.

According to AmBank, overall confidence remained weak, as Covid-19 cases were still high domestically and rising in key external markets, thus dampening external demand, while higher input cost also weighed on outlook.

“Even with the relaxation of the restrictive measures, some businesses are still reluctant to open in fear of another lockdown. Many are still struggling to understand and meet the standard operating procedures (SOPs)driven by the categorisation of essential and non-essential services, thus disrupting the supply chain,” it explained.

Looking ahead, AmBank Research said, the prospects of the manufacturing sector would depend on the speed of vaccination, effectiveness of the vaccination, how best the current SOP can be simplified for easy understanding by the business and community and the reopening of the economy with a lower risk of another lockdown, among others.

“We expect H2’21 to be more challenging, especially in the third quarter of 2021,” it said.

AmBank Research projected the economy would grow around 0.5% in H2’21, bringing the full-year growth to around 3%–3.5% for 2021.

Steel manufacturing in Malaysia - File pic

Meanwhile, Public Investment Bank Research (PIB Research) said it remained cautious on the near-term outlook for the manufacturing sector, given the ongoing Phase One of the National Recovery Plan in key industrial areas such as Selangor, Kuala Lumpur Johor and Perak.

It said recovery could take longer than expected, given the high number of work-related clusters.

“This will be compounded by the emergence of stronger Covid-19 variants which could push consumers to remain cautious. Combination of supply and demand disruptions may dampen the index in the near term,” it added.

PIB Research said Malaysia’s weak PMI manufacturing reading was consistent with the trend observed for other Asean countries.