PMI falls to survey low amid Covid-19 pandemic

PETALING JAYA: The IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) recorded 31.3 during April, down from 48.4 in March, pointing to a sharpest decline in business conditions since data collection began in 2012 as measures implemented to tackle Covid-19 caused firms to either suspend production or operate well below full capacity.

Lockdown measures both domestically and overseas had a considerable impact on demand, which fell at a survey-record pace. Supplier deliveries were also heavily affected by the movement control order (MCO), restricting firms’ ability to purchase vital materials.

IHS Markit said containment measures at home and in export markets had severely restricted demand and often meant good producers operated well below full capacity. In some cases, firms completely suspended output due to insufficient staff numbers and reduced intakes of new work. Consequently, manufacturing production declined at an unprecedented rate.

Some companies indicated that their key clients had shut down and the latest data signalled a substantial and survey-record decline in export demand during the month, with 83% of companies reporting lower orders from abroad.

Supply chain delays also impeded manufacturers in April, with firms recording the sharpest month-to-month lengthening in delivery times since data collection started almost eight years ago.

According to panel comments, the MCO had severely impacted transportation and there were also reports of material shortages at vendors due to factory closures.

IHS Markit said the combined effect of lower production requirements and longer vendor delivery times led to a sharpest drop in purchasing activity in the survey history, and stocks of inputs also fell markedly as firms tightened their inventories to contain costs.

It noted that employment reported a modest decline in April, as panel members linked job losses reported to the movement control order, which prevented some staff from working. That said, 95% of firms reported unchanged workforce numbers.

The firm also observed signs of stabilisation in business expectations for the next 12 months. Sentiment edged up into positive territory as companies anticipate an economic recovery over the course of the coming year. However, the uncertainty regarding the longevity of the Covid-19 crisis weighed on the outlook.

It also found deflationary price trends for the period as prices paid for raw materials and other inputs fell when compared to March as suppliers due to weak demand, giving firms more room to reduce output charges, which fell at the quickest rate since January 2015.

Commenting on the latest survey results, IHS Markit chief business economist Chris Williamson said it is no surprise to see measures taken to contain the pandemic have led to a sharp fall in manufacturing activity in April.

He explained that domestic demand was hit hard by containment measures and production at many firms was curbed by business closures. Meanwhile export demand collapsed as governments around the world took drastic action to prevent healthcare systems from being overwhelmed.

“It was reassuring to see only a modest fall in employment, as the vast majority of firms held on to staff to safeguard longer term production capacity,” said Williamson.

He added that business expectations for the year ahead also ticked higher, as more companies saw prospects improve.

In that respect, with an increasing number of governments looking at ways to ease Covid-19 restrictions, it’s likely that we will soon see the rate of export decline moderate, helping drive a recovery in production.

“A recovery is nevertheless likely to be sluggish, as global demand looks set to remain relatively subdued for some time.”

source https://www.thesundaily.my/business/pmi-falls-to-survey-low-amid-covid-19-pandemic-YL2368265