KUALA LUMPUR: Production levels in Malaysia in June have declined at a quickest rate in two-and-a half years according to the manufacturing Purchasing Managers’ Index (PMI) .
The Index, published for the first time by Nikkei and Markit, is a composite single figure indicator of manufacturing performance, and derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases. “At 47.6 in June, down from 49.5 in May, the headline PMI signalled a further deterioration in operating conditions at Malaysian goods producers”, according to the Nikkei Malaysia Manufacturing PMI.
Any figure more than 50.0 is an indication of improvement of operating conditions. The Nikkei Malaysia Manufacturing PMI said output declined at the quickest rate in two-and-a-half years, alongside a marked fall in new orders while employment levels declined for the first time this year so far.
Cost pressures remained, as purchasing prices increased at a solid pace, while charges rose for the fourth month in a row. Matching the fall in output was a marked decline in incoming new work mainly attributed to a fall in sales from domestic clients, as new export orders remained in growth territory.
It noted that while there have been new orders from abroad for the fifth successive month in June, growth in international demand was only marginal and the weakest in the current five-month period of expansion. Commenting on the Malaysian Manufacturing PMI survey data, Markit economist Amy
Brownbill said operating conditions in the Malaysian manufacturing sector deteriorated further in June. “Input prices continued to rise at a marked pace, amid reports of the implementation of a Goods and Services Tax (GST)driving up purchasing costs with companies trying to pass the higher cost burden on to clients.”
AffinHwang Capital Research said the headline PMI has been below the 50-threshold for three consecutive months, as reflected in all five major components namely new orders, output, employment, suppliers’ delivery times and stocks of purchases.
The research house said global and individual countries’ PMIs have been used to provide as a leading indicator for economic trends. “The trends in Malaysia’s monthly PMI were consistent with the country’s leading index (LI), an indicator designed by Department of Statistics to predict the direction of the economic activity, where it slowed sharply from 2.8 per cent year-on-year in March to 0.9 per cent in April.”
Malaysia’s industrial production index (IPI) slowed from 7.1 per cent year-on-year in March to 4 per cent in April, from 6.5 per cent in the first quarter of 2015. “The manufacturing output, which accounted for 66 per cent of total IPI and a good proxy for quarterly GDP growth, also slowed suggesting that the production sector is losing some of its growth momentum,“said economists Alan Tan and Shazeya Razzaad. Affin Hwang Capital expects Malaysia’s real GDP growth to expand at a slower pace of around 4.5 per cent year-on-year for the second quarter from 5.6 per cent in the first quarter. “We believe the economic slowdown in the second quarter was attributed partly to the implementation of GST in early April 2015, as consumers front-loaded their purchases, which led to some slowdown in production in the domestic-oriented manufacturing sector. “ The country’s exports of manufactured goods also slowed due to lower exports of commodity as a result of falling commodity prices, they added.
