KUALA LUMPUR, Aug 3 — Malaysia’s manufacturing sector continued to be battered as production fell sharply last month due to poor domestic demand in a tough economy, while the weakened ringgit and a consumption tax racked up costs leading to the fastest rate of layoffs since a year ago, according to a report.

The Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI), which indicates manufacturing performance with any figure greater than 50.0 signifying improvement, revealed a score of 47.7 in July, not much different from 47.6 in June that was the lowest reading since over two-and-a-half years ago in October 2012.

“The rate of decline was little-changed from June’s 30-month record, with panellists mentioning poor demand and challenging economic conditions as factors behind the latest contraction,” said PMI that was released today.

“Resulting from falls in both production and new orders, manufacturers cut back on their staffing levels in July. Although modest overall, the rate of decline was the fastest since July last year,” the report added.

According to the PMI, purchasing shrank at the third-fastest rate in the series history last month while stocks were cleared at the fastest rate ever due to a fall in demand.

The PMI also noted that purchasing costs increased, with anecdotal evidence showing that higher taxation and unfavourable exchange rates drove up raw material costs.

The ringgit fell to the weakest level against the US dollar on July 6, a 16-year low, since a peg was scrapped in 2005.

Malaysia’s economy is slowing amid political instability, with complaints of rising living costs after the GST, a consumption tax, was enforced on April 1.

The recent Hari Raya celebration, a season where consumers typically spend on big-ticket items like cars and furniture, has also seen a steep drop in such sales, and even in small buys like cookies and clothes.

The PMI noted that new orders for Malaysian goods fell the fifth month in a row in July, with the rate of decline the second-quickest since October 2012.

“Firms linked the latest decrease to a slump in client demand, greater competition and a weak economy,” said the report.

Although new orders from abroad increased for the six month running in July, the rate of expansion of exports was marginal, with the New Export Orders Index posting just above the 50.0 no-change mark.