Malaysia’s manufacturing on downward spiral, Nikkei survey says

KUALA LUMPUR, July 1 ― The country’s manufacturing output dropped for the 15th consecutive month in June and at the fastest rate in over three years, led by a marked slump in foreign demand, according to Nikkei Malaysia’s Manufacturing Purchasing Managers' Index (PMI) revealed today.

According to the report, new export orders declined for the first time in five months, adding to the dip in total new orders.

“As a result, employment stagnated and and manufacturers cut back on buying activity for the thirteenth consecutive month,” the report said.

According to Amy Brownbill, an economist from financial service and information provider Markit, the stagnation in employment suggest that firms were more “cautious towards the outlook of the Malaysian economy”.

The report said the decline in demand also encouraged firms to reduce inventories, with both pre-and post-production items falling during the month.

“In fact, inventories of finished goods declined at the quickest rate in the series history,” the report said.

The report said the headline PMI posted 47.1 in June, down from 47.2 in May, signalling worsening operating conditions in the local manufacturing sector. Any number greater than 50 in the index represents an improvement in the sector.

“Moreover, the latest reading contributed to the lowest quarterly average since the survey began in July 2012,” it added.

The report said that firms mainly linked the slump in international demand to the increase in sales tax reducing global competitiveness, as well as unstable market conditions.

The increase in sales tax and unfavourable exchange rates have also caused input prices to surge at the quickest rate in the survey’s history.

This, the report said, led to a further increase in charges.

In April, it was reported that the PMI for the manufacturing sector dropped to 47.1 from 48.4 in March.

Malaysia is banking on exports to achieve its targeted gross domestic product growth of between 4 and 4.5 per cent this year, as high household debt and rising inflation weigh on consumer spending.

Household debt here has reached 89.1 per cent as a ratio of GDP or over RM1 trillion.

Slowing global demand also negated the export advantages of the weak ringgit, which is currently trading at 3.98 versus the US dollar.

Malaysia's trade balance fell to RM6.8 billion in the last quarter, down from RM11.4 billion in the final three months of 2015.