Weakness in Malaysian manufacturing sector will persist for some time

PETALING JAYA: Weakness in Malaysia’s manufacturing is expected to be sustained for an extended period based on the decline in March’s purchasing managers index (PMI) reading of 48.4, according to analysts.

Affin Hwang Capital pointed out that the Covid-19 outbreak had caused a drop in demand and restricted operating capacities amid delayed deliveries of inputs domestically.

In addition, export demand also suffered in March led by a broad-based decline in foreign sales weighed down by the outbreak.

“Sentiment among manufacturers also took a hit, declining to its lowest level since January 2016, where over the next 12 months producers are now anticipating further reduction in production amid concerns over the outbreak having a long-lasting negative impact and expectations of sustained supply chain disruption,” it said in a report.

Beside the global disruption in manufacturing, the research house believed that the downside risk to Malaysia’s manufacturing PMI may likely continue amid the ongoing movement control order (MCO) which is likely to end on April 14, as certain producers which are classified under non-essential and some essential services will remain closed, and will continue to dampen new orders and output.

Externally, it noted that the uncertainty in the resumption of production will be a drag to the sector, as China is a main export market for Malaysia.

“The overall weaker demand from other countries and sustained global supply chain disruption amid the slowdown in economic activity in view of ongoing lockdowns and quarantines will also weigh on export sales,” said Affin Hwang.

The research house made a further cut to its 2020 GDP forecast to -3.5%, in view of weak domestic demand and global supply chain disruption on Malaysia’s manufacturing and external sector.

Public Investment Bank Research said Malaysia’s manufacturing PMI outlook is likely to sustain below the neutral level for an extended period of time, due to the rapidly evolving Covid-19 pandemic.

The research house, however, expects a turnaround in manufacturing activity in the second half assuming that the Covid-19 pandemic is no longer a threat.

“The return to normalcy in China’s economic activity is a harbinger of an improvement in demand and supply conditions, reflected by the sharp rebound in China’s PMI Manufacturing Index in March.”

Meanwhile, AmResearch opined that with the public health measures remaining intact and open ended, the downside risk on Malaysia’s manufacturing activities is more likely to be felt from April onwards and the impact will be felt in both the domestic and external fronts.

“How long the adverse impact on manufacturing will last depends on the duration of the MCO.

“Also, it remains to be seen how effective the monetary and fiscal stimulus measures will be, in particular in supporting SMEs, consumers, and those who have lost their daily wages and monthly income,” it said.

That said, the research house pointed out that compared to the Asean region, the PMI manufacturing data suggests that Malaysia is less impacted from the coronavirus pandemic that led to the collapse of supply and demand

source https://www.thesundaily.my/business/weakness-in-malaysian-manufacturing-sector-will-persist-for-some-time-ND2207359