PETALING JAYA: Businesses signalled that the Malaysian manufacturing sector saw demand conditions soften midway through the second quarter of 2022 as productive capacity was hindered by price pressures and supply shortages.
The S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) fell from 51.6 in April to 50.1 in May. While fractionally above the neutral 50.0 level, the latest reading was indicative of a broad stagnation in manufacturing operating conditions. The historical relationship between the PMI and official statistics suggests that the upturn in gross domestic product was beginning to ease in the second quarter of the year.
There was a further moderation in production levels that was the fifth in as many months, while new order growth slowed sharply from April.
The lack of productive capacity extended into the labour market as the rate of job shedding quickened to the sharpest seen since August 2020.
S&P Global Market Intelligence chief business economist Chris Williamson said manufacturers continued to struggle in May against the headwinds of elevated price pressures and supply chain delays, as well as labour shortages.
Lockdowns in mainland China in particular continue to aggravate the supply situation which, alongside difficulties sourcing workers, has led to a deteriorating factory production trend.
“However, companies have become more optimistic about the outlook. Optimism has been buoyed by stronger export sales and signs of a possible peaking of both supply delays and input cost inflation. Supply chains lengthened to the least extent for almost a year in May, and input costs rose at the slowest rate since last September; both welcome indications that the supply and inflation crisis may be starting to ease.”
Businesses were increasingly confident that output would expand over the coming 12 months, extending the current sequence of optimism to 11 months and boding well for output and jobs growth to improve in coming months.
New order growth slowed sharply in the latest survey period. While positive overall, the rate of growth was only fractionally above the neutral 50.0 threshold, falling 3.9 points in comparison to April. As a result, output volumes wre scaled back for the fifth consecutive month in May. That said, the rate of moderation was only modest overall. Manufacturers also reported that raw material shortages and rising prices had dampened client demand and production capacity.
Meanwhile, foreign demand for Malaysian manufactured goods continued to rise in May. The rate of growth quickened from April to reach the sharpest for 13 months as some panellists reported strengthened demand in key markets outside of mainland China as the pandemic impact dissipated.
Malaysian manufacturers reported that employment levels moderated further in May. The rate of job shedding was moderate, but the quickest reported since August 2020. Where a decrease was reported, firms noted the sustained difficulty in sourcing foreign workers and the non-replacement of voluntary leavers.
Goods producers continued to report significant supply chain disruption in May, although there was tentative evidence that pressures were gradually easing. Supplier delivery times lengthened at a marked rate that was nonetheless the softest since last June, as shortages of freight capacity and raw materials were exacerbated by renewed lockdown restrictions in mainland China. Delivery delays also contributed to a renewed reduction in input purchases, while holdings of pre- and post-production inventories broadly stabilised amid efforts to build safety stocks of inputs and finished goods.
Difficulty in sourcing and receiving raw materials contributedto a sustained increase in raw material prices. Input costs have now risen consistently for two years, as have factory gate charges, as firms continued to partially pass higher cost burdens on to clients.
Despite the reintroduction of restrictions in mainland China, manufacturers were increasingly confident that output would rise over the coming year, citing hopes that the end of the pandemic would encourage a full easing of restrictions. This would aid a broad-based recovery in market demand and supply chains.