PETALING JAYA: The near-term outlook for Malaysia’s Manufacturing Purchasing Managers’ Index (PMI) is set to be weighed down by the emergence of stronger Covid-19 variants and the delay of phase one of the National Recovery Plan (NRP).
The manufacturing PMI is a measure of the prevailing direction of economic trends in manufacturing. A reading above 50 signals expansion while less than 50 means a contraction.
In July, the domestic manufacturing activities remained in the contraction territory for the second month, as the manufacturing PMI stood at 40.1 compared with 39.9 in June.
PublicInvest Research said less-than-favourable operating conditions pushed the index to remain below the neutral level at 40.1 in July, a slight rebound, however, against 39.9 in June.
“We remain cautious on the near-term outlook given the phase one of the NRP, which could take longer than expected, especially when there is a high number of work-related clusters in industrial areas (eg, the Klang Valley, Negri Sembilan).
“This will be compounded by the emergence of stronger Covid-19 variants (Beta, Delta, Lambda) which could push consumers to remain cautious.
“A combination of supply and demand interruptions may dampen the index in the near term,” it said.
The country’s manufacturing PMI remained sluggish, no thanks to the ongoing lockdown measures which entered their second month of implementation in July.
The lockdown measures which are part of phase one of the NRP entail strict standard operating procedures (SOPs).
SOPs with only 18 manufacturing and manufacturing-related services sub-sectors are allowed to open.
The authorities also reduced operating hours and capacities during this phase, a toll on output and therefore the headline index.
The index was also affected by a disruption in demand, as consumers reduced spending due to economic uncertainty, PublicInvest pointed out.
AmBank Group chief economist Anthony Dass said as expected, the movement control order (MCO) 3.0 continued to weigh on the manufacturing PMI in July.
Poor output and new orders continued to weigh on manufacturing performance, he said.
“However, the downside was contained by export orders which remained healthy.
“With average manufacturing PMI at 48.4 in the second quarter (Q2) of 2021, it suggests downside risk for Q2 gross domestic product (GDP) growth. Nevertheless, with exports averaging at 44.0% year-on-year and expectations for export-led manufacturing activities to support overall industrial production and the National People’s Well-Being and Economic Recovery Package or Pemulih stimulus measures, we should see Q2 GDP hovering around 11%–13%.
“We reiterate the full-year GDP at 4.0%–4.5%,” Dass said.
Meanwhile, MIDF Research said it is maintaining its 2021 GDP projection at 4.6%.
The current tight restrictions on the economy, people’s mobility and social activities are seen as a temporary drag, as the country’s economy is expected to resume its recovery when the public health situation improves.
“While new Covid-19 cases remain high, the progress in the national vaccination drive has picked up and many states have been placed in the second phase of the NRP.
“We view immediate downside risks to the outlook will be from the extension of the lockdown and the worsening of the local Covid-19 situation, which will continue to hurt confidence in the near term,” it noted.