Malaysia’s manufacturing still slow but signs in Sept show sector may be on the mend

KUALA LUMPUR, Oct 1 — Covid-19 cases continued to disrupt manufacturing in Malaysia last month, but the latest survey by IHS Markit showed that things may be looking up for the sector.

IHS Markit said that while production and new orders were still slow in September, the reduction was the softest in four months as the government had eased back on some Covid-19 restrictions. 

In its Malaysia Manufacturing Purchasing Managers’ Index (PMI) released today, the market research firm noted that the sector was limited by a shortage of raw materials, which contributed to backlogs in production.

However, it said that manufacturers are increasingly optimistic that output will increase over the next 12 months. 

“The uplift in the PMI for September provides a clear signal that the recent easing of pandemic-related restrictions, both domestically and in many key export markets, is helping drive an improvement in the economy. 

“According to IHS Markit’s Covid-19 Containment Index, virus-fighting restrictions have been rolled back in Malaysia to their lowest since April, facilitating production and helping ease the downturn in demand,” Chris Williamson, the chief business economist at IHS Markit, said in a statement.

Williamson said that its Malaysia Manufacturing PMI rose from 43.4 in August to 48.1 in September, adding that while the reading remained under 50.0, which indicates continued deterioration in the sector, the rate of deterioration has slowed down significantly compared to the previous three months. 

A score below 50 denotes contraction while a score above 50 signals expansion.

The report shared that employment fell slightly for a second month in a row in the Malaysian manufacturing sector as businesses indicated difficulties in securing foreign workers amid strict border controls. 

Significant supply chain delays have also been observed in the Malaysian manufacturing sector, as containment measures restricted supply of freight capacity and raw materials, which exacerbated existing delays and shortages. 

IHS Markit said that despite the restrictions and disruptions of the economy, manufacturers were increasingly confident that output would rise over the coming year, resulting in the highest degree of optimism since April. 

“The survey data therefore add to signs that the economy has turned a corner at the end of the third quarter following a steep downturn, and the improvements in the survey’s future expectations and order book indicators point to growth picking up in coming months.

“Problems persist, however, most notably in terms of pandemic-related supply chain delays, which are pushing up prices and constraining output in some firms. Thus, while manufacturing looks to be on the road to recovery, that path will by no means be without its challenges,” said Williamson.