The Malaysian manufacturing sector saw a steepest decline in business during April as measures implemented to tackle the spread of the Covid-19 pandemic caused firms to either suspend production or operated well below capacity.
The lockdown measures both domestically and overseas had drastically impacted demand, which fell at a survey-record pace.
The IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) slumped to 31.3 in April, down from 48.4 in March.
According IHS Markit, supplier deliveries were also heavily affected by the movement control order (MCO), restricting firms’ ability to purchase vital materials.
The measures implemented to contain the spread of the coronavirus, both at home and in the export markets had severly restricted demand and often meant goods producers operated at below full capacity.
In some cases, it also said firms completely suspended output due to insufficient staff numbers and reduced intakes of new work. Therefore, manufacturing production declined at an unprecedented rate.
The latest data signalled a substantial and survey-record decline in export demand during April, with 83 percent of companies reporting lower orders from abroad.
Supply chain delays also hindered manufacturers, with firms recording the sharpest month-to-month lengthening in delivery times.
With the combined effect of lower production requirements and longer vendor delivery times, IHS Markit said, led to a steepest drop in purchasing activity in the survey history, adding that stocks of inputs also fell markedly as firms tightened their inventories to conserve costs.
It noted that employment reported a modest decline, with 95 percent of firms announced unchanged workforce numbers.
IHS Markit chief business economist Chris Williamson commented that based on the latest survey results, it is no surprise the measures taken to contain the pandemic led to a sharp fall in manufacturing acitivity in April.
“Domestic demand was hit hard by containment measures and production at many firms was curbed by business closures,” he explained.
He added that export demand collapsed as governments around the world took drastic action to prevent healthcare systems from being overwhelmed.
But, it was reassuring to see only a modest decline in employment, Williamson said, adding that the vast majority of firms held on to staff to safeguard longer term production capacity.
He also said that business expectations for the year ahead ticked higher, as more companies saw prospects improve. Hence, it’s likely that we will soon see the rate of export decline moderate, helping drive a recovery in production.
A recovery is nevertheless likely to be sluggish, as global demand looks set to remain relatively subdued for some time.