Malaysian manufacturers reported sluggish demand at the end of the third quarter of 2023, as evidenced by a variety of indicators in the most recent purchasing managers index (PMI) data.
S&P Global Market Intelligence said in a statement on Monday that output and new orders both moderated more than they did in August, while new export orders decreased at the third-fastest rate in the series’ history.
Moreover, it noted that purchasing activity slowed to the largest extent since September 2021, while employment levels declined for the sixth consecutive month.
This drop in input demand had an impact on stockpiles of purchases as well.
The level of outstanding business decreased at one of the fastest rates in the series’ history since July 2012, which indicated some spare capacity in the sector.
S&P Global Malaysia PMI, which is seasonally adjusted, registered 46.8 in September, down from 47.8 in August.
With business conditions moderating to the greatest extent since January, the most recent data indicated additional challenges for companies in the manufacturing sector.
According to S&P Global, the third-quarter data indicate that year-over-year GDP growth slowed further from that recorded in the second quarter when compared to official gross domestic product (GDP) estimates.
The information was also in line with the official manufacturing production being largely stable on a yearly basis, according to the statement.
In September, manufacturing new orders moderated for the thirteenth consecutive month; the most recent slowdown was the worst in eight months due to widespread reports of sluggish demand.
The domestic market was not the only one with a weak demand climate; fresh export orders experienced their biggest decline since May 2020.
A further slowdown in production, which slowed for the 14th month in a row and to the greatest amount since January, was also significantly attributed to a shortage of demand.
For the seventh consecutive month, according to S&P Global, employment moderated in September.
It was said that the main causes for the decreased workforce levels were attributed to fewer workloads and employee resignations.
Additionally, there was evidence of spare capacity, as work backlogs were cleared for the 16th consecutive month and at the fastest rate since July 2017.
Weaker demand for inputs was partly a result of low demand conditions. While holdings of finished goods decreased at the fastest rate since July 2021, both input purchases and pre-production inventories were scaled back to the largest extent in two years.
Positively, after a slight decline during the previous survey period, supplier performance has gotten closer to stabilisation.
Although input costs increased, the rate of inflation over the past three years has been rather slow.
Where input prices rose, the cost of raw materials also went up.
Nevertheless, the rate of increase in production prices accelerated in September, and the rate of charge inflation reached its highest level in ten months.
Malaysian manufacturers have growing confidence that the current shortfall in demand will eventually improve.
As a result, general optimism was at its highest point since May.
Hopes for a stronger demand environment that would encourage fresh order inflows and business prospects were frequently cited as the source of positive optimism.
However, businesses expressed doubt about when the rebound will occur.
Usamah Bhatti, an economist with S&P Global Market Intelligence, stated that Malaysian manufacturers were still facing difficulties at the end of the third quarter due to widespread reports of weak demand, which led to stronger moderations in output, new orders, and exports.
Although the most recent figures continue to show increase in the official GDP numbers, he claimed that the current soft patch is likely to last for the foreseeable future.
“Data for the level of outstanding business signalled one of the steepest depletions in backlogs in the series history amid a sustained lack of new orders.
“Reflecting the weakness, firms are increasingly cautious regarding spending, pulling back on input purchases, stock holdings and employment levels,” he said.