KUALA LUMPUR, Jan 2 ― Manufacturers ended the 2017 year stagnant as new orders contracted and output growth slowed from modest demand, December data compiled by Nikkei Malaysia Manufacturing Purchasing Managers Index (PMI) showed.

The headline Nikkei Malaysia (PMI) ― a composite single-figure indicator of manufacturing performance ― fell from 52.0 in November to 49.9 in December, signalling a broad stagnation in the goods-producing economy following the strongest growth in over three and-a-half years in the previous month, the report noted.

The index considers any score above 50 to be an improvement, while those below signify a contraction.

"Malaysia’s manufacturing sector observed a renewed decline in new orders at the end of the year. That said, the rate of contraction was marginal.

"Weak domestic demand was reported as the key reason behind lower volumes of new business, as new export orders rose for the second month in succession”.

Despite reports of subdued demand conditions, companies raised hiring to meet production requirements although at a slower rate than the previous month.

Inflation also remained sharp overall and continued to place pressure on firms’ margins despite easing in November. Companies reported cross-sector increases for raw material, forcing them to raise their average selling prices in order to pass on some of the cost burden to clients.

The slowdown was reflected in the drop in buying activity in December, the sharpest decline since September. Respondents linked reduced purchasing activity with subdued demand conditions, prompting companies to cut pre-production inventories accordingly.

Outstanding business also declined for a seventh successive month in December, showing evidence of under-capacity in the manufacturing sector.

"Panellists commented on reduced volumes of new business. The rate of depletion was only marginal, however,” the PMI report added.

Despite December's poor data, businesses retained positive forecasts for output over the next 12 months as manufacturers project improvement in underlying demand conditions according to anecdotal evidence.

"That said, the level of business sentiment eased from November’s 47-month high and remained weaker than the series average,” the report noted.