KUALA LUMPUR: Malaysia’s manufacturing sector returned to expansion in March, with the S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) rising to 50.7 from 49.3 in February.
The latest reading marks the strongest improvement in nearly four years and the fourth expansion in the past five months.
S&P Global Market Intelligence economist Maryam Baluch said the latest PMI data revealed a fresh improvement in the health of Malaysia’s manufacturing sector, driven by renewed growth in both output and employment.
“While this is welcome news following the mild moderation observed midway through the first quarter, the data also highlights several concerning developments, many of which stem from the ongoing war in the Middle East.
"Purchasing activity, delivery times, stock levels, and most importantly, price indicators are beginning to show how manufacturers are responding to the current situation. Confidence has already fallen to a seven-month low, suggesting that the coming months will bring these concerns further into focus,” she said.
S&P Global said the latest PMI data points to Malaysia’s GDP growing about 5.5% year-on-year, based on its historical correlation with official economic data.
Central to the uptick in the headline index was a renewed rise in production in March, with output expanding at its fastest pace since December 2021, supported by stronger demand and new tender wins.
Goods-producing firms in Malaysia recorded a slight rise in employment in March, ending two months of job cuts, with firms adding full-time staff.
Backlogs also declined, reversing the marginal build-up seen in the previous month.
“Total new business moderated for a second consecutive month in March. However, the rate of decrease was broadly unchanged on the month and shallow overall.
“Concurrently, international demand for Malaysian goods softened for the first time in three months, albeit only slightly,” S&P said.
Nonetheless, subdued demand led firms to reduce purchasing activity in March, marking the first decline in nine months and the sharpest in nearly a year.
“Limited shipment container availability and higher prices for raw materials and deliveries resulting from the war in the Middle East were also reasons cited.”
S&P Global said March data showed supply chain pressures intensified, with vendor performance deteriorating at the sharpest pace since May 2022, largely due to longer lead times linked to the war in the Middle East.
Reduced buying and longer input lead times led firms to draw on inventories, with pre-production stocks falling at the sharpest pace in 27 months, while finished goods declined for a fourth straight month.
Cost pressures rose for a second straight month in March, with inflation accelerating to its fastest pace since October 2024, driven by higher transport, energy and material costs linked to the Middle East conflict.
Selling prices also rebounded sharply, with output price inflation hitting a 45-month high as firms moved to protect margins.
“Sentiment for the year-ahead outlook for output eased further to a seven-month low in March. While optimism was supported by hopes that the demand environment would improve, confidence was severely dampened by the ongoing war in the Middle East,” S&P said.
