Malaysia factory activity improves in May after 12-month decline
But a decrease in new order inflows persists.
Malaysia's manufacturing activity slightly grew to 48.8 in May from the previous month's PMI of 48.6, an S&P Global survey said.
This figure, while indicative of a sustained moderation in operating conditions, highlights the reality that the Malaysian manufacturing sector has faced a decline for twelve consecutive months.
Despite the increase in the PMI, production levels remain tepid, with the seasonally adjusted index still below the neutral mark of 50.
"PMI data for May revealed that business conditions in the Malaysian manufacturing sector were muted as production levels were scaled back in the midst of subdued new orders. That said, the rates of reduction in both measures eased to three-month lows and were only
marginal overall," Usamah Bhatti, Economist at S&P Global Market Intelligence, said.
"As such, the data indicated that GDP growth is likely to have sustained at a similar pace as seen in the opening quarter of the year."
Output has been consistently reduced for a year, although the pace of decline was the gentlest seen in the last three months. Much of this trend can be attributed to a decrease in new order inflows, posing significant challenges for manufacturers.
In May, the number of new orders tapered off for the third consecutive month, although the reduction was less severe than in April. Firms are reporting a cautious climate among clients, both domestically and internationally, leading to a sixth straight month of declining new export orders, albeit at a decelerated pace.
Additionally, the manufacturing sector's struggles have been aggravated by a steady rise in operating expenses. Input prices, which have surged month after month for five years, spiked at the highest rate in six months in May.
This inflationary trend is largely linked to unfavourable currency fluctuations and the impact of US tariffs, particularly affecting the costs of imported raw materials. In response, manufacturers froze their prices in May for the first time after four months of decline in charged prices.
Employment levels held steady in May, marking a pause in a seven-month trend of job cuts, albeit hindered by subdued new order inflows that prompted firms to manage backlogs cautiously.
Despite these challenges, there were small signs of relief with reports of improved vendor performance, evident in more timely deliveries as demand for inputs softened.
Looking ahead, the sentiment within the manufacturing sector remains cautiously optimistic. Many firms foresee potential growth as they anticipate better demand conditions in the upcoming year. However, the confidence level saw a decrease, falling to its lowest since June 2021 due to ongoing worries over US trade policies and the ongoing skills shortage in the labour market.
