Oct manufacturing PMI improves, Q4 GDP growth seen accelerating

PETALING JAYA: The underlying trend within Malaysia’s manufacturing sector gained traction as IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) reported an improvement in October driven by new orders and output.

The business outlook subsequently strengthened, while employment rose as an increasing number of firms reported renewed expansion plans.

In October, the PMI reported an increase to 49.3 from 47.9 recorded in the previous month, which is its highest level for six months and reviving to sit broadly in line with its historical average.

At current levels, the PMI is broadly indicative of annual GDP growth of over 5%.

IHS Markit chief business economist Chris Williamson commented that signs of manufacturing turning a corner started to appear in October, hinting that the pace of economic growth could accelerate in the fourth quarter.

“Production is being buoyed by improved domestic demand in particular, but external conditions remain challenging, dampening export growth once again and raising concerns about how much further momentum can continue to build in the absence of improved global economic conditions.”

“It therefore remains too early to say that manufacturing has turned a corner, but we are especially encouraged by producers having become more optimistic about the outlook, which is feeding through to welcome news of improved employment.”

IHS Markit reported that the healthier business environment was driven by a rise in the survey’s gauge of production volumes to a 12-month high.

Analysis of comparable historical official data on Malaysian manufacturing suggested that, at the current levels, the survey’s output index is consistent with annual production growth of approximately 5.5%.

PMI data indicated a notable step up in the order book trend during October, with the respective index rising to a six-month peak, as survey respondents linked improved demand to new product launches and stronger new work inflows from existing clients.

However, the survey participants cited that external conditions became more challenging at the start of the fourth quarter, which caused export orders to decline for a second successive month.

Anecdotal evidence pointed to China and Europe as two key sources of weak demand.

Nevertheless, with the overall new orders index rising, survey data suggests domestic demand conditions helped provide a key driving force to help offset the external demand downturn.

Outlook strengthened in October, encouraged by a healthier underlying business environment with firms on balance projecting growth in output over the next 12 months.

IHS Markit noted that an increased number of companies reported improved investment intentions, while forecasts of greater demand also underpinned optimism.

The improved outlook also led firms to increase their workforces in October, the strongest rate of job creation since April.

This also coincided with evidence of capacity pressures building, as the backlogs of work index rose to a 14-month high.

source https://www.thesundaily.my/business/oct-manufacturing-pmi-improves-q4-gdp-growth-seen-accelerating-CY1562325