KUALA LUMPUR: Malaysia's manufacturing sector returned to expansion in October, supported by stronger new orders and output amid rising demand for artificial intelligence (AI)-related products.
The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers' Index (PMI) rose to 51.0 in October from 49.9 in September, marking the strongest improvement in operating conditions since April.
The latest reading also marked the fourth improvement in manufacturing conditions in five months.
A PMI reading above 50 indicates expansion, while a reading below 50 signals contraction.
S&P Global Market Intelligence economist Maryam Baluch said the latest data pointed to improving conditions in Malaysia's manufacturing sector at the start of the fourth quarter.
"New orders returned to growth, supported in part by stronger demand for AI-related products, and underpinned a fresh rise in output.
“Firms continued to raise their staffing levels and also increased their purchasing activity for the first time in three months, as they sought to expand operating capacity," she said.
However, supply chain pressures persisted, prompting some manufacturers to draw on finished goods inventories to meet demand.
Inflationary pressures also intensified, with higher transportation and raw material costs weighing on manufacturers.
"These cost concerns, together with uncertainty over the economic and geopolitical outlook, weighed on near-term sentiment. Manufacturers were the least optimistic since April. The latest PMI data therefore outlined external headwinds as a key threat to the economy's current resilience," Baluch said.
S&P Global said the latest PMI reading pointed to continued growth in industrial production and GDP in the fourth quarter, with momentum picking up from the third quarter.
It said production and new orders rose in October, with new order growth among the fastest in four-and-a-half years, driven by stronger demand, particularly from existing customers.
S&P Global said manufacturing output rose for the first time in three months, albeit marginally, while firms continued to draw on finished goods inventories to meet higher demand.
It added that manufacturers increased hiring for the third consecutive month and stepped up purchasing activity to support higher production and sales.
Meanwhile, delays in receiving inputs persisted for an eleventh consecutive month in October. Port congestion was said to have contributed to the latest deterioration in vendor performance.
Supplier delivery delays eased from September, while manufacturers increased their purchasing inventories for the second consecutive month, albeit marginally.
Meanwhile, higher transportation and material costs, partly linked to the war in the Middle East, pushed up operating expenses, prompting manufacturers to raise selling prices.
Concerns over rising costs and economic and geopolitical uncertainties also weighed on business confidence, which fell to its lowest level since April.
