PETALING JAYA: The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) rose to a four-month high of 47.9 in September, up from 47.4 in August, but business conditions in the manufacturing sector remained challenging.

This was the first time since April that the headline index has increased. At current levels, the PMI is broadly indicative of annual gross domestic product (GDP) growth of between 4.5% and 5%, according to historical comparisons.

The latest PMI data suggested that business conditions in Malaysia’s manufacturing sector remained challenging in September, although there were signs of improvement as the new orders and output indices both increased.

New product launches are anticipated to drive production volumes over the coming year and business optimism subsequently remained strong.

Employment held steady in September, while input price inflation moderated.

The survey’s output index picked up slightly in September, but held close to the levels seen across the third quarter, indicating a stable production trend.

IHS Markit said demand conditions also showed some signs of stabilisation in September. While survey data pointed to an increasingly tough environment in recent months, improved sales to existing customers reportedly contributed to a rise in the new orders index.

“Nevertheless, challenges remained apparent as clients held out for price discounts amid strong competitive pressures. External demand also remained fragile, with orders from key export markets dropping.”

Meanwhile, current and future workloads were deemed sufficient to hold employment steady during September.

The future output index was consistent with a relatively strong level of confidence, highlighting that businesses expect production volumes to be higher than present levels over the coming 12 months.

According to firms, forecasts of greater demand from domestic and external clients, as well as the planned development of new products drove the positive outlook.

However, a darkening global economic environment and geopolitical concerns contributed to a moderation in firms’ optimism compared to that seen in August.

IHS Markit said the latest survey data pointed to greater cost pressures faced by Malaysian goods producers, although the rate of input price inflation slowed and was historically weak overall. The vast majority of firms kept selling prices unchanged (97%) during September.

Commenting on the latest survey results, IHS Markit chief business economist Chris Williamson said with global headwinds intensifying, it is no surprise to see Malaysia’s manufacturers continuing to struggle in September, but there are at least some encouraging signs of upward momentum being regained.

He said the September survey comes on the heels of global PMI data showing worldwide economic growth slipping closer to three years lows mid-way through the third quarter, led by the steepest drop in global trade since 2012.

“In this environment, it’s reassuring to see that the Malaysia PMI is indicating only a very marginal easing of growth so far in the third quarter, thanks to the PMI reviving to a four-month high in September, hinting that GDP is likely to continue to expand at a respectable annual rate of 4-5% in the third quarter.

“However, while businesses generally remain upbeat about expanding production over the coming year, September saw some loss of optimism. It will therefore be important to watch global developments to ascertain whether growth momentum can be sustained as we head into the fourth quarter,” he said in a statement.

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