KUALA LUMPUR, June 4 — Operating conditions across Malaysia’s manufacturing sector deteriorated in May, stretching the current period of decline to four months, according to Nikkei Malaysia.

This was predominantly driven by the sharpest fall in new business since December 2016. On the price front, input cost and output charge inflation eased to the slowest since October 2016 and February respectively.

At the same time, business sentiment remained above the historical average. The headline Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) which is a composite single-figure indicator of manufacturing performance fell from 48.6 in April to 47.6 in May.

This indicated a solid deterioration in operating conditions that was the strongest since June 2017.

A fall in new orders was a key factor contributing to the downward movement in the headline index.

The rate of contraction was the strongest in nearly one-and-a-half years. Lacklustre demand was cited by panellists as the main reason behind lower new business.

Meanwhile, new export orders fell for the fourth successive month. That said, the rate of decline moderated to the weakest in three months. Panellists commented on weak underlying demand conditions.

For the first time in seven months, Malaysian manufacturing companies reduced their payroll numbers in May. Cost-cutting measures and poor demand conditions were the key factors behind lower payroll numbers, according to anecdotal evidence.

As has been the case since February 2015, Malaysian manufacturing companies faced higher input prices during May.

"Panellists reported that there was a general increase in raw material prices. That said, input cost inflation eased to the slowest since October 2016,” the report on PMI stated.

Average prices charged by Malaysian manufacturers rose in May. Reflecting the easing of cost inflationary pressures, however, output charge inflation was modest and eased from April’s seven-month high.

Amid reports of poor demand conditions, purchasing activity declined at the fastest pace since last June. Subsequently, pre-production inventories reduced in May, albeit marginally.

Despite easing slightly from April’s recent high, Malaysian manufacturers retained strong projections for output in the year ahead, due to hopes that the new government will spur business activity and improve demand conditions.