PETALING JAYA: The local manufacturing sector saw demand conditions soften midway through the second quarter of 2022 but businesses are increasingly confident that output would expand over the coming 12 months.

       This bodes well for output and jobs growth to improve further.

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       The softening of productivity capacity was hindered by price pressures and supply shortages.

       “Companies have become more optimistic about the outlook. Optimism has been buoyed by stronger export sales and signs of a possible peaking of both supply delays and input cost inflation,’’ S&P Global Market Intelligence chief business Economist Chris Williamson said.

       He said manufacturers continued to struggle in May against the headwinds of elevated price pressures and supply chain delays, as well as labour shortages.

       Lockdowns in mainland China, in particular, continue to aggravate the supply situation, which alongside difficulties in sourcing workers, has led to a deteriorating factory production trend.

       Supply chains lengthened by the least extent for almost a year in May and input costs rose at the slowest rate since last September – both are welcome indications that the supply and inflation crisis may be starting to ease.

       The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) fell from 51.6 in April to 50.1 in May.

       While fractionally above the neutral 50.0 level, the latest reading was indicative of a broad stagnation in manufacturing operating conditions.

       The historical relationship between the PMI and official statistics suggests that the upturn in gross domestic product (GDP) was beginning to ease in the second quarter of the year, S&P said.

       Difficulty in sourcing and receiving raw materials contributed to a sustained increase in raw material prices. Input costs have now risen consistently for two years, as have factory gate charges, as firms continued to partially pass higher cost burdens on to clients, it said.

       It said new order growth slowed sharply in the latest survey period. While positive overall, the rate of growth was only fractionally above the neutral 50.0 threshold, falling 3.9 points in comparison to April.

       As a result, output volumes were scaled back for the fifth consecutive month in May. That said, the rate of moderation was only modest overall.

       However, foreign demand for Malaysian manufactured goods continued to rise in May and the rate of growth quickened from April to reach the sharpest for 13 months.

       There is hope that the end of the pandemic would encourage a full easing of restrictions in China and this would aid a broad-based recovery in market demand and supply chains.

       There was also strengthened demand in key markets outside of mainland China as the pandemic impact dissipated.