Malaysia PMI rises to 50.7, output gains in June

Firms adopted a wait-and-see approach as hiring and purchasing hold steady.

Malaysia’s manufacturing sector edged back into expansion in June, with fresh growth in both output and new orders marking a modest improvement in the health of the goods-producing economy, even as firms kept a cautious grip on hiring and purchasing.

The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index rose to 50.7 in June, up from 49.9 in May, indicating a renewed and modest improvement in the health of the Malaysian manufacturing sector. The index has posted above the neutral mark of 50.0 in three of the last four survey periods.

Cost pressures ease

New orders and output, the two largest sub-components of the PMI, registered fresh expansions during the latest survey period, after May saw slight moderations. Panel members put the improvement in new business down to firmer underlying demand, which in turn prompted manufacturers to lift production.

Purchasing activity, however, told a different story. After marginal increases in both April and May, manufacturers kept their purchasing activity unchanged at the end of the first half of the year. Whilst stronger orders led some firms to buy more inputs and raw materials, others said demand remained too weak to justify increasing stock levels, leaving overall stocks of purchases broadly stable.

Those who did buy inputs reported longer waits for delivery, with vendor performance deteriorating more markedly than in May, as Malaysian companies pointed to material shortages and the wider geopolitical situation as the cause. The resulting sourcing difficulties pushed outstanding business volumes modestly higher over the month.

On costs, firms again cited the war in the Middle East as exerting upward pressure on fuel and raw material prices, driving a sharp rise in cost burdens during June, though the pace of inflation eased to its slowest in three months. Manufacturers nonetheless raised their own charges by more than they had in May, with the increase running sharp and above both the long-run average and the rise seen in costs.

Employment was little changed overall, as growth in new orders encouraged some firms to take on extra staff, whilst job losses at other companies left the overall employment picture flat for the month. Manufacturers, however, remained optimistic that output would rise over the coming year, buoyed by hopes that improving demand conditions would feed through to higher production.

Maryam Baluch, economist at S&P Global Market Intelligence, said June’s data pointed to a wait-and-see approach among Malaysian manufacturers: while new orders and production showed encouraging signs of revival, buying and hiring activity were held unchanged.

She added that firms would need clearer support from demand before hiring and purchasing picked up, and that with year-ahead confidence still relatively muted, companies were likely to remain cautious for now.

Overall, she said, firms appeared to be focused on rebuilding margins that had come under pressure from the fallout of the Middle East war, with cost pressures easing even as the pace of output charge inflation quickened.