KUALA LUMPUR: S&P Global Market Intelligence expects business conditions in Malaysia’s manufacturing sector to remain challenging due to subdued demand.

The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) declined to 47.8 in May from 48.8 in April, signalling further challenges for firms in the manufacturing sector.

S&P Global Market Intelligence noted that both output and new orders moderated to a greater extent than in April, while firms scaled back employment for the first time in five months.

“Purchasing activity also softened, and this weakness in demand for inputs fed through to improvements in supply chains and relatively muted inflationary pressures,” it said in a note today.

Economics director Andrew Harker said although the latest figures are still representative of growth in official numbers, the sector does appear to be going through a soft patch which may last for some months.

“As such, firms are cautious in terms of their spending, pulling back on input purchasing and scaling back employment.

“A degree of spare capacity has become evident, not least in supply chains where delivery times improved to the greatest extent in just over a decade in May,” he said.

Meanwhile, S&P Global Market Intelligence believes that so far, the official figures for the second quarter suggest that gross domestic product (GDP) growth will hold steady around the 5.5% year-on-year mark.

However, it noted that manufacturing new orders have moderated for the ninth consecutive month in May, with the latest slowdown being the sharpest in three months amid widespread reports of demand weakness.

The subdued demand environment was not limited to the domestic market, with new export orders also softening, it said.

“However, the outlook remains positive overall, amid hopes that the demand environment would recover over the year ahead, thus leading to an expansion of production,” it added. – Bernama