MIDF Research said the PMI contraction was mainly attributable to a significant dip in new orders as demand has paced down consecutively for the last 11 months.
KUALA LUMPUR: The recent weakness in the country’s purchasing managers’ index (PMI) is in line with the weakness in this area seen in other countries globally.
Malaysia’s manufacturers had shown a continued decline in output growth with 11 straight months of contraction in July and this may impact gross domestic product (GDP) growth forecasts if prolonged, said economists.
The S&P Global Manufacturing PMI was recorded at 47.8 in July 2023 and the weakness was exacerbated by demand softness in export markets such as the United States and China as well.
According to MIDF Research, the PMI contraction was mainly attributable to a significant dip in new orders as demand has paced down consecutively for the last 11 months.
“Client confidence remained dented in domestic and international markets, with new export orders moderating the most since May 2020.
“Meanwhile, production volumes were tapered down for the 12 consecutive months, reflecting the tepidness in demand conditions,” it said.
Firms in the survey had cited weakness in the exchange rate as one of the reasons for the rise in the cost of raw materials, although the price charged by producers had remained unchanged to stimulate demand, MIDF Research said.
“Among regional peers, Japan, South Korea, Taiwan and China also recorded manufacturing PMI below the 50-demarcation line.
“The pessimism among manufacturers in Malaysia and regionally reflects persistent weakness in regional and global demand,” the research house said.
“Henceforth, we maintain our forecast that Malaysia’s GDP growth to moderate at 4.2% in 2023 compared with 8.7% in 2022, weighed by uninspiring external trade performance as real exports of goods is predicted to contract by minus 2.8%.”
TA Research said the latest PMI reading indicated a sustained slowdown in business conditions, which is similar to the overall larger trend that was seen during the second quarter of the year.
“Numerous firms reported that client confidence remained low, both in domestic and international markets.
“A noteworthy observation was the rate at which new export orders were moderating as it reached its fastest pace since May 2020, indicating increased challenges in the global market,” TA Research said.
It highlighted that the PMI survey members had said raw material prices continued to rise amid exchange rate weakness.
“Suppliers’ delivery times remained relatively stable, signalling an end to the six-month trend of shortening lead times.
“The subdued operating conditions during this period led firms to reduce their input buying in line with their production requirements,” it said.
Meanwhile, PublicInvest Research said the latest PMI figures present continued challenges for businesses as subdued economic conditions had restrained production and the demand outlook.
It said order books were significantly downsized, reaching their most substantial contraction in six months amid persistent client apprehension.
“Although an improved supply chain environment has been beneficial for operations, there are indications of increasing inflationary pressures due to a sustained acceleration in average cost burdens,” PublicInvest Research said.
