KUALA LUMPUR: Malaysia's manufacturing sector recorded a slight deterioration in business conditions in May, with the S&P Global Malaysia Manufacturing Purchasing Managers' Index (PMI) easing to 49.9 from 51.6 in April.
The latest headline reading marked a return to contraction territory after two consecutive months of improvement in the health of the Malaysian manufacturing sector.
S&P Global said historical relationships between the PMI and official data suggest that the headline figure, which remained close to the 50.0 no-change mark, points to further solid increases in both official manufacturing production and gross domestic product (GDP) midway through the second quarter.
S&P Global Market Intelligence economist Maryam Baluch said sluggish demand in Malaysia's manufacturing sector led to a moderation in operating conditions, with output and new orders easing after growth in April.
She noted that the historical relationship between the PMI and official data suggests further solid increases in manufacturing production and GDP midway through the second quarter.
"Employment was held broadly steady after two months of job creation, and despite an improvement in May, business confidence remained subdued by historical standards.
“Meanwhile, the war in the Middle East continued to drive up material and fuel costs, but firms were more reluctant to pass these costs on to clients than had been the case in April amid softening demand,” Baluch said.
S&P Global said the lower headline reading reflected weak demand conditions, as recent price hikes weighed on sales growth and led to a renewed moderation in total new orders.
Additionally, companies faced continued challenges in securing new business from abroad, with export orders falling for a third straight month at the fastest rate since October last year. Production also moderated slightly after two months of expansion.
“In May, amid subdued production demands, manufacturers paused hiring. The respective seasonally adjusted index dipped fractionally below the crucial mark of 50.0, signalling broadly unchanged staffing levels.
“While some firms expanded their payrolls, resignations, layoffs, and labour sourcing challenges offset these gains,” it said.
S&P Global said firms increased purchasing activity for a second straight month in May, driven by efforts to hedge against anticipated raw material price increases and build buffer stocks amid the ongoing Middle East conflict. The pace of growth was slightly faster than in April, though still modest.
Continued purchasing activity helped limit the decline in input inventories, which fell only marginally and at the slowest pace in four months.
Meanwhile, input costs increased due to higher raw material and fuel prices. Although cost inflation eased slightly from April's recent peak, it remained elevated overall.
Firms were cautious in passing on higher costs to customers, resulting in a much slower increase in selling prices than April's record pace. Respondents said any price hikes were largely driven by rising cost pressures.
“Finally, Malaysian goods producers were generally confident that output will expand over the next year. Though the degree of positive sentiment ticked up for the first time in four months to the highest since February, it was still historically subdued,” it said.
