KUALA LUMPUR, Feb 3 — The Malaysian manufacturing sector saw demand decline for the first time since September 2021 as sustained raw material shortages and rising prices hampered production capabilities and clients’ confidence, according to the IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) data.

However, IHS Markit noted that these manufacturers remained optimistic that the downturn would be shortlived, as employment levels stabilised following a slight fall in December and businesses grew increasingly confident that output would increase over the coming 12 months.

"Malaysia’s manufacturers reported a new downturn in January as the Omicron variant created further headwinds for manufacturers around the world, dampening demand and exacerbating existing, unprecedented supply chain delays.

"However, the downturn looks to be only mild in comparison to previous waves of the pandemic and will likely be shortlived,” said Chris Williamson, Chief Business Economist at IHS Markit.

"In Malaysia, manufacturers have in fact grown increasingly optimistic that the longer-term outlook has brightened, with business expectations for the year ahead rising to the highest since April and almost at the highest seen since the pandemic began,” Williamson added.

IHS Markit said that while the latest PMI latest reading remained above the neutral 50.0 level for the fourth month running, the rate of expansion is the softest in the sequence, dropping from 52.8 to 50.5 in January, signalling that the upturn in GDP eased at the start of 2022.

"Both output volumes and new order inflows were scaled back in January. While the reductions were only modest, they marked the first such declines seen for four months.

"Manufacturers commonly reported that raw material shortages and rising prices had dampened client demand and production capacity,” the report said.

IHS Markit said that foreign demand for manufactured goods has also moderated, but at a softer pace than total new orders, while employment levels have stabilised following a slight dip the previous month.

It added that difficulties in sourcing and receiving raw materials contributed to a sustained increase in raw material prices, while input costs rose for the twentieth time in as many months in January.

"Despite ongoing international restrictions, manufacturers were increasingly confident that output would rise over the coming year, citing hopes that the end of the pandemic would encourage a full easing of restrictions and trigger a broad recovery in market demand.

"As a result, the degree of optimism reached the highest since April 2021,” it said.