Malaysia factory growth stays modest in July as orders rise

New orders grew at their fastest pace in eight months even as output barely moved.

Malaysia’s manufacturing sector eked out another modest improvement in July, with new orders growing at their fastest pace in eight months even as output barely moved and business confidence fell to a three-month low, the latest S&P Global survey showed.

The seasonally adjusted Malaysia Manufacturing PMI held steady at 50.7 in July, unchanged from June, marking the seventh month of expansion in the past nine.

New orders and output, the index’s two largest components, both rose, with new business accelerating to an eight-month high whilst output growth stayed only fractional. Firms linked the gains to repeat custom, stronger demand, new product launches and freshly won tenders. Export orders returned to growth for the first time in five months, albeit only marginally, with panelists citing firmer demand from Europe and the US.

Despite the pickup in orders, purchasing activity rose only fractionally and stocks of purchases stayed broadly flat. Input lead times lengthened for the eighth consecutive month, though by the smallest margin since January, with respondents blaming war-related disruption, logistical problems and material shortages. Backlogs of work fell at their joint-fastest pace in seven months as firms drew on spare capacity, whilst finished goods inventories dropped for a third straight month, at the sharpest rate so far this year.

Employment fell, with firms citing resignations, layoffs and deliberate cost-cutting after a flat reading in June.

Inflationary pressures eased, with both input costs and selling prices rising at their slowest rates in five months, even as material shortages and higher fuel, transport and freight costs pushed underlying costs up.

Confidence in the year-ahead outlook, however, weakened to its softest in three months, with subdued market conditions and the war in the Middle East weighing on sentiment despite hopes amongst some manufacturers for firmer demand and new contracts.

Maryam Baluch, economist at S&P Global Market Intelligence, said Malaysia’s manufacturing sector had continued to expand modestly in July, helped by stronger inflows of new work and a renewed rise in export orders, alongside easing price pressures as both input costs and selling charges rose at their slowest rates in five months. She added that overall growth momentum remained limited, with output rising only slightly, employment falling and confidence weakening as ongoing geopolitical tensions continued to cloud the outlook.