Malaysia’s PMI drops to record low

by **Cals** Wed 02 Dec 2015, 20:35

Malaysia’s PMI drops to record low

By Supriya Surendran / The Edge Financial Daily | December 2, 2015 : 9:49 AM MYT

This article first appeared in The Edge Financial Daily, on December 2, 2015.

KUALA LUMPUR: Malaysia’s headline [size=16]Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) dropped to a record low of 47 in November, from 48.1 in October, according to Markit, signalling the sharpest rate of deterioration in the operating conditions of Malaysian manufacturers since the survey began in July 2012.
“The overall contraction reflected four out of the five PMI components with production, new orders, employment and stocks of inputs all declining during the month.
“On the price front, both input and output prices rose at marked rates, as reports of higher raw material costs led to an increase in cost burdens,” said global diversified provider of financial information services Markit Ltd in a statement yesterday.
The headline Nikkei Malaysia Manufacturing PMI is a composite single-figure indicator of manufacturing performance, and is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 450 industrial companies.
It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases, and any figure greater than 50 indicates overall improvement of sector operating conditions.
Markit said that the sharp decline in production in November contributed to the worsening operating conditions.
“The rate of decrease was the quickest since October 2012, with a number of firms blaming challenging market conditions and a fall in sales as factors behind the contraction.
“Data suggested that the main driver behind the fall in total new orders was poor domestic demand, as new exports increased during November,” said the firm.
As a result of reductions in production and new orders, buying activity declined and recorded its sharpest rate of decrease since the survey began in July 2012.
However new orders from abroad expanded for the third consecutive month.
“The rate of growth eased from October’s 15-month record but was nevertheless in line with the long-run trend. According to panellists, the exchange rate helped to improve international competitiveness,” said the firm.
It added that employment had contracted for the first time in three months, with firms attributing efforts to cut costs as a factor behind reduced staffing numbers.
As for cost pressures, Markit said that this remained strong as unfavourable exchange rate movements drove up imported raw material costs.
“Although easing since October, the rate of inflation was sharp. Meanwhile selling prices rose at the fastest rate in the series history as companies tried to pass on their higher cost burdens on to clients,” said the firm.
According to Markit chief economist Chris Williamson, Malaysia and neighbouring Indonesia which recorded a PMI of 46.9 in Nov, had both seen an intensive downward spiral in their PMI numbers.
“In Indonesia the PMI numbers could be in relation to the decline in its export market, but in Malaysia we believe it is more of a slowdown in domestic demand, in relation to the effect of the falling crude oil prices to the economy” he said during the Markit 2016 Asia Economic Outlook media conference call yesterday.
Williamson added that Vietnam, which reported a PMI of 49.4 in November was the country to look for out for in terms of economic performance.
“Vietnam could be the key standout performer in 2016, as it has a low-cost base and stands to benefit from the Trans-Pacific Partnership agreement,” he said.
On the potential interest rate hike by the US Federal Reserve (Fed) this month and its impact on the Asian markets, Williamson said that the onus was on the Asian central banks to provide the support for their economies.
“The Asian central banks would have to play a pivotal role in terms of policy support next year should there be a rate hike in December [2015] by the Fed in order to ensure stability in the Asian economy, which may continue to see repercussions as a result of the slowdown in China’s economy and low commodity prices,” he said.
On the impact of the Fed’s rate hike to the ringgit, which has depreciated 21% year to date against the US dollar, Williamson said the ringgit’s current levels have already priced in the effects.
“However there will be some downward pressure on the currency should there be a hike in interest rates,” he added.
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