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PETALING JAYA: Optimism prevails over severely curtailed operating conditions driven by a fresh wave of Covid-19 cases for Malaysian manufacturers, as the IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) inched up to 40.1 in July from 39.9 registered in previous month.

For July, manufacturers saw production levels and new orders moderate, as the former fell at the greatest extent since April 2020. On a positive note, employment levels have stabilised, ending a streak of three consecutive reductions as manufacturers adopted a rosier outlook for the year ahead underpinned by hopes that restrictions would lift as the current Covid wave recedes, boosting domestic and external demand.

The survey found both output and new orders signalled further marked reductions in July, with the rate of decrease for output quickened from June to reach the fastest since the first wave of the pandemic in April 2020. Companies reported that renewed pandemic restrictions dampened demand and client confidence in both domestic and international markets.

That said, IHS Markit pointed out that the reduction in new export sales was considerably softer than aggregate new orders, as some firms commented on pockets of demand improving in Europe and the US in particular.

It noted that a brighter picture came from the job market as Malaysian goods producers signalled a stabilisation of employment in July, ending a three-month period of job shedding. As preparation for orders in the future reportedly required additional capacity, though some businesses commented on difficulty in hiring workers from abroad.

However, input costs rose for the 14th consecutive month, reflecting higher prices for a range of raw materials and higher freight costs. The overall rate of inflation was steep overall and the quickest since May. Manufacturers sought to partially pass these higher costs to clients in the form of higher output charges, although the rate of inflation was the softest reported for five months.

Similarly, shortages of materials, as well as delays in receiving shipments caused average supplier lead times to lengthen to the greatest extent since May. At the same time, both purchases and inventory levels fell. Some firms noted that supply delays had hindered restocking efforts and, in some cases, curtailed production. Backlogs of work consequently decreased for the third month running in the latest survey period.

Overall, it reported Malaysian manufacturers displayed a renewed sense of optimism regarding the outlook for output in the coming year, despite headwinds from supply shortages amid a renewed surge in infections. The degree of sentiment was modest overall, but marked a welcome improvement from June’s record low, as the panellist attributed the improved outlook to hopes that national and international restrictions would lift and aid a recovery in production and sales.

Commenting on the latest survey results, IHS Markit chief business economist Chris Williamson said Malaysia’s manufacturing sector continued to be badly hit by the ongoing pandemic in July, though companies are already planning for better times.

“Production fell sharply for a second successive month as the recent rise in infections and containment measures associated with the Delta variant both dampened demand and disrupted supply chains,” he said.

Williamson pointed out that domestic demand and export orders fell sharply at the start of the third quarter, while supplier delays continued to develop at one of the fastest rates yet recorded by the survey.

“There was better news in terms of the outlook, however, with companies becoming more optimistic after the rise of the Delta variant had pushed confidence in June to its lowest on record. More companies are now seeing some light at the end of the tunnel, and employment consequently stabilised.

“There was also better news on prices. Although input cost inflation ticked up slightly, it continued to run well below the steep rates recorded earlier in the year, helping push selling price inflation down to its lowest since February.” he said.

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