Cost, Supply Pressures Ease States Purchasing Managers Index Survey

Domestic demand, Supply Chain Shifts Will Spur ASEAN Recovery
ASEAN’s recovery is powered by manufacturing and exports - Photo: https://unsplash.com/@gieling

Malaysia’s latest Purchasing Managers Index (PMI) survey has revealed that cost and supply pressures have eased as firms indicate that vendor performance has stabilised after three years of deterioration and firms finally cut selling prices, the first reduction in 2.5 years.

However, despite improving confidence that the outlook will be better in 2023, manufacturers’ confidence in December 2022 remained below average, mainly due to worries that the demand outlook would remain muted going forward, MIDF Research said in a note today.

Malaysia’s manufacturing activities contracted further in December 2022 with the PMI remaining below 50 for the fourth consecutive month.

“We view the contraction in December 2022 to be in line with the weaker regional production as reflected by declines in PMIs for other regional countries, including China.

“We expect slower activities in regional production will remain for now on the back of weaker demand and in anticipation of slow growth in advanced markets,” it said.

Although the reopening of China’s economy will be a positive development, the research house remains cautious as China is also exposed to softening external demand, with the global economy projected to experience slower growth this year.

Meanwhile, commenting on the Asean Manufacturing PMI data, S&P Global Market Intelligence economist Maryam Baluch said the latest PMI data indicated that growth across the ASEAN region is losing steam.

“The slowdown was driven in part by increasingly subdued demand conditions across the region, which resulted in a second month of contraction in new orders.

“Job shedding also entered its second month, as firms trimmed staff amid falling business requirements,” she said in a separate note.

While the drop in demand has restrained growth, Baluch said the effect on prices, along with the ongoing monetary policy tightening of central banks across the region, has helped curb inflationary pressures.

Nonetheless, prices still continue to rise sharply across the region, she said.

“Output expectations for the year ahead have also fallen to the lowest in over a year. The weaker global economic climate was a key concern, alongside inflation and further cuts to client spending,” she added.

According to S&P Global, Asean’s headline PMI figure fell for the third consecutive month, down to 50.3 in December from 50.7 in November.

“Although manufacturing firms across the Asean region reported an improvement in operating conditions, thereby extending the current run of expansion that began in October 2021, the reading pointed to a further loss of momentum at the end of the year.

“Moreover, the latest reading was the lowest in the aforementioned sequence and signalled only a fractional rate of improvement overall,” it said.

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