lease: Malaysia’s manufacturing sector saw strong improvements in April with renewed expansion in production levels and new orders, with the latter growing at the fastest pace since April 2019 as companies adapted to Covid-19 restrictions and strengthened demand conditions, according to Manufacturing Purchasing Managers in the IHS Markit Malaysia Index (PMI). .
He noted that manufacturers have grown optimistic about their outlook for the coming year, hoping that a successful vaccination program will stimulate a rapid recovery in production and confidence.
For the month of April, the PMI rose to 53.9 from 49.9 in the previous month, indicating a strong improvement in the health of the manufacturing sector and the strongest recorded since the start of the survey in July 2012. Based on the historical relationship, the reading indicated a steady recovery from the impact of the epidemic.
IHS Markit said the data indicated that production for this month grew for the first time in nine months and that the pace of growth has been stronger since June 2020. It revealed that companies typically attributed renewed growth to improved market demand leading to increased orders.
Additionally, new order volumes returned to expansion territory in April, the first increase since September 2018, and the pace of increase was the fastest in seven years as manufacturers noticed stronger customer confidence, particularly for new products.
IHS Markit also announced an increase in new export sales for the first time since November 2019, with demand recovering in key markets across Asia and the United States.
On the flip side, there was a renewed drop in employment at Malaysian manufacturing firms in April, although it was only marginal. Employment levels have fallen in 12 of the past 13 months, as manufacturers indicate that foreign work permits have not been issued due to Covid-19 restrictions.
With new orders returning to growth, companies commented that pressure continued to build on capacity with high-end business increasing for the second month in a row.
Meanwhile, input costs rose for the eleventh consecutive month in April, reflecting higher prices for raw materials and logistics. Input price inflation accelerated to the fastest in just over four years, and was generally rapid. As a result, manufacturers transmitted these higher costs to customers in part through higher production fees, which rose at a remarkable pace and extended the current streak of inflation to 11 months.
Regardless, companies have reported lengthening lead times, have had to resort to purchasing larger quantities to guard against disruption, and post-production stocks have stabilized on a large scale.
Meanwhile, Malaysian manufacturers are increasingly optimistic about the coming year, with expectations reaching their highest levels since August 2019, buoyed by hope that a successful vaccination program will lead to a broader economic recovery.
Commenting on the results of the latest survey, Chris Williamson, chief business economist at IHS Markit, said the revival of demand, particularly on exports, has eased lockdowns, helping to further boost Malaysian manufacturing growth. At the same time, increased hopes for launching the vaccine have pushed business optimism for the next year to one of its highest levels since 2013, he noted.
“However, supply-side constraints have evolved further, as they have stymied growth and could restrict the recovery. Backlogs are piling up at a rate not seen in four years as companies struggle to produce enough goods to meet demand,” he said in a report.
Not only are companies reporting difficulties in finding sufficient numbers of suitable employees to increase production, but input delivery delays are also getting worse, Williamson said.
He stated that, with the exception of April and May last year, during the large-scale factory closures as a result of the first wave of the epidemic, the latest prolongation of supply chains is the longest in the survey’s nine-year history.
Prices are rising as a result of an imbalance between supply and demand, with producer prices charging one of the steepest rates in four years. The concern is that these price increases will inevitably harm consumers in the coming months.