Despite a potential recovery in China’s economy, it is likely that the Malaysian PMI will continue to remain soft for the time being, says Lee.
PETALING JAYA: The Malaysian Manufacturing Purchasing Managers’ Index (PMI) is likely to stay at subdued levels below the key 50 threshold level following the decline seen in other major economies such as the United States and Japan.
Despite a potential recovery in China’s economy, it is likely that the Malaysian PMI will continue to remain soft for the time being, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said.
“The PMI would likely be below 50 for the next few months. The Malaysian PMI figures were generally at higher levels for most of last year (year-on-year change) as the economy normalised following the transition to the endemic phase,” Lee told StarBiz.
“China’s reopening can eventually boost these figures but with the current situation where Covid caseloads are still high there now, I would expect the people there to be more cautious on their spending,” Lee added.
A reading above 50 for the PMI denotes an expansion and a number below 50 signifies a contraction.
He said any positive spillover from the reopening of China’s economy is likely only to kick in during the second half of the year.
“The first quarter’s PMI figures for the year may not be so good and hopefully by the end of the first quarter, the Covid situation will come under control and then it can recover from then on,” Lee said.
The Malaysian Manufacturing PMI had seen a fourth consecutive month of decline in December 2022.
Malaysia’s industrial sector shrank in December 2022 to 47.8 from the prior month’s 47.9 reading
The manufacturing sector in Malaysia continues to face challenging conditions at the end of the fourth quarter of last year.
Kenanga Research stated this indicates a persistent weakness in demand due to weak orders.
“Output levels had remained in a contraction mode for the fifth straight month while new orders fell for the fourth straight month in November 2022, but the rate had slightly improved compared to the previous month,” Kenanga Research said.
It noted that external demand recorded a downtrend with new export orders falling for the sixth straight month, in tandem with the rising risk of a global growth slowdown.
SERC’s Lee said the latest PMI reading reflected a slower economic growth environment globally as interest rates continued to creep higher.
He hopes that any recession in Europe and the United States would be shallow with China avoiding a contraction of its economy with growth improving in the second half of the year.
Kenanga Research said manufacturing activity fell further among major economies with weakness seen in the major economies of the United States and Japan.
Moving forward, Kenanga Research said some firms were optimistic that production will rise over the coming 12 months.
MIDF Research said the major cause of the fall in the Malaysian PMI last month was a moderation in production and orders.
“Manufacturing firms in Malaysia also reduced purchases of materials and inventories.
“As companies slowed down hiring in anticipation of softer demand, the pace of decline in backlogs of work was among the steepest since the survey started,” MIDF Research said.
“Despite improved confidence that outlook will be better for the year, the level of manufacturers’ confidence in December 2022 remained below average mainly due to worries that demand outlook would remain muted going forward.
“We view the contraction in December to be in line with the weaker regional production as reflected by the decline in PMIs for other regional countries, including China,” MIDF Research added.
The research house also noted that the latest PMI survey shows easing cost and supply pressures since companies have indicated that vendor performance have stabilised after three years of deterioration, and firms have finally cut selling prices, which is the first reduction in 2.5 years.
Meanwhile, TA Research had highlighted a common thread seen in the most recent surveys, which is the shaky state of consumer demand, that has been a consistent issue over the previous three months.
“Forward looking indicators suggested that firms were anticipating conditions to remain challenging in the coming months as signalled by a further trimming in input buying, reduction in inventory levels and a relatively weak outlook on output over the next year,” TA Research said.
