KUALA LUMPUR: The recovery in the Malaysian manufacturing sector continues to lose momentum midway through the fourth quarter of the year, said IHS Markit.
According to IHS Markit Malaysia Manufacturing Purchasing Managers' Index (PMI), businesses had continued to scale back production, while new order inflows moderated.
A rise in Covid-19 cases both domestically and around the world led to reduced demand for Malaysian manufactured goods while supply chains struggled to deliver inputs in a timely manner.
"Nevertheless, Malaysian manufacturers were increasingly optimistic regarding the year-ahead outlook, with hopes that an end to the pandemic would give rise to a wider recovery in demand," it said.
IHS Markit said a composite single-figure indicator of manufacturing performance had dipped fractionally for a fifth month in a row, down from 48.5 in October to 48.4 in November.
It said this reading signalled a further moderation in the health of the manufacturing sector, although the trend appears to be flattening, while the deterioration was considerably less marked than that seen during the first wave of the pandemic.
"The historical relationship between official statistics and the PMI suggests that while gross development product (GDP) continued to trend toward stabilisation, output in the manufacturing sector had stagnated as both the Malaysian economy and key international markets combated a resurgence in Covid-19 cases," it said.
IHS Markit said both production and new order volumes had moderated in November, yet the pace of deterioration was markedly softer than in April.
Firms commonly attributed the latest round of scaling back to the reintroduction of restrictions on movement which dampened domestic and external markets.
"Greater restrictions led to a fall in new export orders, which reduced faster than overall new business inflows. A resurgence of infections in key markets such as India was cited as a contributor to ongoing weakness in exports, which fell for the eleventh month running.
"Positively, staffing levels among Malaysian manufacturers edged towards stabilisation in the latest survey period," it said.
According to IHS Markit, cost pressures on manufacturers were often attributed to raw material shortages, as firms reported the sixth consecutive rise in average cost burdens in November.
The rate of input cost inflation accelerated compared to October and was the fastest in four months.
"Higher costs were partially passed on to customers, as signalled by a further increase in output charges. In response to slower production and order volumes, Malaysian manufacturing businesses scaled back purchasing activity.
"Holdings of raw materials and semi-finished goods also dipped midway through the final quarter of 2020, as did stocks of finished products," it added.
Looking forward, IHS Markit said Malaysian manufacturers were increasingly optimistic regarding the 12-month outlook for production.
"Positive sentiment was signalled for the eighth month running amid hopes that an end to the pandemic would bring about a return to normal operating conditions and boost production," it added.