KUALA LUMPUR: The seasonally-adjusted S&P Global Malaysia Manufacturing Purchasing Managers' Index (PMI) rose to 49.0 in January from 47.9 in December, the highest since September 2022.
The latest reading suggests that the downturn of last year is losing momentum and sets the Malaysian manufacturing sector on course for a gradual recovery.
S&P Global Market Intelligence economist Usamah Bhatti said the latest data for the Malaysian manufacturing sector signalled that the worst of the slowdown seen in 2023 has passed.
He added that the January data points to an easing in the rate of moderation in operating conditions.
"Output, new orders and exports were all scaled back to lesser extents at the start of 2024, representative of a slight pick up in the rate of gross domestic product (GDP) growth.
"Amid the softer reduction in new orders, firms also indicated the slowest depletion in backlogs since August 2022, suggesting that capacity pressures are starting to build on manufacturing firms," he said in a report.
Bhatti also noted that firms have reported a further softening in price pressures in January, as input prices rose at the slowest rate for eight months.
This contributed to the softest rise in output charges since August 2023.
Looking at the historical relationship between the PMI and official GDP statistic s, S&P Global said the figures suggest that year-on-year GDP growth picked up from the end of 2023.
The data are also consistent with a marginal improvement in official manufacturing production on an annual basis.
Additionally, the firm also said manufacturing new orders moderated for the seventeenth month running in January, though the latest slowdown was the weakest recorded since October 2022.
"Firms often reported that the muted demand environment weighed on sales though some companies noted a slight improvement at the start of 2024.
This trend was extended to international demand, as new export orders reduced at the softest pace in the current nine-month sequence," it said.
S&P Global also noted that subdued demand was a key factor behind a further slowdown in production, which eased for the eighteenth month running but to the softest extent since April 2023.
It said employment moderated for the eighth time in the past nine months in January, however, the rate of job shedding was only fractional.
"There were some reports of the non-replacement of voluntary leavers, though other firms mentioned that some vacancies were filled.
"Spare capacity was evident, with backlogs of work reducing for the twentieth month running, but at the softest rate since August 2022," it added.
S&P Global noted that subdued demand conditions also fed through to softened demand for inputs.
Input purchases and preproduction inventories were scaled back at the softest rates for eight and 10 months respectively, while holdings of finished items were reduced at the slowest pace since last May.
Although input costs rose, S&P Global said the pace of inflation was the most muted for eight months, with the firm attributing the increase to higher raw material costs and a weak exchange rate.
"That said, output prices were raised only fractionally in January, with the rate of charge inflation the softest in five months.
"Looking to the future, Malaysian manufacturers were optimistic that demand would improve over the coming year. As such, the overall degree of optimism picked up slightly from that seen in December," it noted.