Manufacturing data points to Covid-19 downturn easing in May, but declines remain

Syed Jaymal Zahiid
Manufacturing output across the country decreased in May although the rate of contraction eased substantially since April. — Picture by Choo Choy May

KUALA LUMPUR, June 1 ― The IHS Markit manufacturing index in May suggests the country’s manufacturing sector could be approaching stabilisation midway through the second quarter of 2020, with reduction in output rates, new orders and employment all easing considerably.

But last month’s data still saw marked declines as the Covid-19 pandemic and the associated measures taken to stem its spread led to severe supply chain disruption and extended factory shutdowns, survey data showed.

“A strong rise in the PMI provides the first major indication that the economic downturn caused by the Covid-19 pandemic appears to have bottomed out,” Chris Williamson, Chief Business Economist at IHS Markit, said in the survey report.

“While manufacturing activity continued to fall at a steep rate in May, declines in output and order books were notably less severe than seen in April.

The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) ― a composite single-figure indicator of manufacturing performance ― rose sharply to 45.6 in May, from April's survey-record low of 31.3.

The figure, however, remained below the neutral 50.0 mark despite the large month-on month surge.

IHS Markit said the survey findings were indicative of a further deterioration in manufacturing sector conditions, although the latest decline was still considerably weaker than at the start of the second quarter.

Manufacturing output across the country decreased in May although the rate of contraction eased substantially since April. Purchasing activity and new orders placed with Malaysian goods producers continued to fall in the same period.

IHS Markit said its panel members attributed the declines to current measures both domestically and overseas to stem the spread of Covid-19, the disease that has killed over 370,000 people worldwide.

The PMI survey found persistent mentions of extended factory shutdowns and further production cutbacks in response to the pandemic, and supply-side hindrances remained unprecedented in May and continued to disrupt Malaysia's manufacturing sector.

Input delivery times lengthened markedly close to April's record, when the country was under the full force of the movement control order (MCO).

Labour shortages at vendors, transportation restrictions and the extension of the MCO were all reported to have contributed to the sharp lengthening in supplier lead times.

But IHS Markit said the downturn lost in strength fueled some optimism. The slight monthly recovery data followed reports that some firms had restarted production following a partial lifting of lockdown rules.

Of the minority of companies that recorded sales growth, clients reopening their businesses had led to new jobs.

IHS Markit expects the recovery to pre-outbreak period could drag longer.

“While we may see a return to growth as we head into the third quarter, it still looks like a recovery to pre-pandemic production and GDP levels will be long and slow,” Williamson said.

“Export demand in particular looks set to be weak for some time as Covid-19 restrictions will inevitably need to stay in place and continue to dampen economic activity around the world.”

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