Malaysia's manufacturing sector dips in October due to rising Covid-19 cases and renewed restrictions

A general view of Port Klang ahead of the conditional movement control order in Klang October 8, 2020. — Picture by Miera Zulyana
A general view of Port Klang ahead of the conditional movement control order in Klang October 8, 2020. — Picture by Miera Zulyana

KUALA LUMPUR, Nov 2 — Malaysia’s manufacturing activity as measured by the Manufacturing Purchasing Managers’ Index (PMI), dipped for the fourth successive month in October, down to 48.5 from 49.0 in September.

Business research outfit IHS Markit said the PMI — which analyses data from about 400 manufacturers in the country — showed that the sector was being hampered by both the surge in Covid-19 cases and the government’s move in reimposing movement restrictions in October to contain the coronavirus infection.

It added that the slowdown in both output and new orders signified a decline in business optimism.

“The latest reading signalled a modest deterioration in the health of the sector, albeit one that was much less marked than seen at the height of the pandemic,” IHS Markit said in its report released today.

Malaysia recorded some of its highest new daily Covid-19 cases last month in what the Health director-general has called the “third wave” of infections. Its highest incidents in a single day were on October 24, when 1,228 cases were reported.

The government reintroduced the conditional movement control order on Kuala Lumpur, Putrajaya and Selangor — the country's manufacturing hub — on October 14, initially for two weeks but is now extended until November 9.

IHS Markit said Malaysia’s manufacturing output looks to be stagnating amid this resurgence of Covid-19 cases.

“Both new orders and production moderated in October, and to greater extents than in September.

“The extension and reintroduction of restrictions to prevent the spread of COVID-19 was reportedly a key factor behind worsening market demand and a scaling back of production,” it said.

Chris Williamson, chief business economist at IHS Markit, noted that new export orders also fell last month to a greater extent than total new business.

He attributed this drop to disruptions to international demand caused by the pandemic.

“Weaker new order inflows meant that firms were able to deplete their backlogs of work. The resulting reduction in outstanding business was the sharpest since December 2018. A lack of pressure on capacity resulted in a further fall in employment, although the rate of job cuts continued to soften from August's survey record,” he said in a statement accompanying the report.

He noted that businesses have expressed a reluctance to increase their purchases and were holding their existing stocks amid fragile demand.

He also noted that stocks of both purchases and finished goods were depleted in October.

“Although manufacturers remained confident that output will increase over the coming year, optimism fell sharply from September's nine-month high amid rising Covid-19 case numbers and the extension of restrictions. Those respondents that predicted an increase in output hoped that market demand would recover over the next 12 months,” Williamson said.

The Malaysian PMI is compiled from responses to monthly questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilisation, employment and inventories.

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