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Economic Viewpoint
2 October 2015
Malaysia Manufacturing PMI
Economics
Kenanga Investment Bank Berhad
[email protected]
[email protected]
T: 603-2079 1379
Leading indicator shows sixth month of contraction
OVERVIEW
The latest reading of the Nikkei Malaysia
Graph 1: PMI & CEIC Leading Index
Manufacturing Purchasing Managers’ Index
54
120
(PMI)
in
53
115
operating conditions for the manufacturing
52
110
51
105
50
100
49
95
showed
continued
worsening
sector, albeit at a slower rate. September
headline PMI stood at 48.3, signifying a
slower rate of contraction from 47.2 in
August. Nevertheless, the index remained
under the 50.0 level that separates expansion
from contraction for the sixth month in a row.
48
90
Markit Global PMI
47
Markit Malaysia PMI
85
CEIC Malaysia Leading Index (RHS)
The 3Q15 quarter has the lowest quarterly
46
Sep-12
average reading since the data was collected.
Source: Dept. of Statistics, Kenanga Research
Sep-13
Sep-14
80
Sep-15
Manufacturers scaled back on their production due to lackluster new orders and unfavorable
economic conditions. The CEIC leading indicator also pointed to deteriorating economic
conditions. It will prove to be a hurdle for the manufacturing sector to recover in coming months.

The Nikkei Malaysia Manufacturing PMI is a new leading indicator published by Markit beginning July 2015. It
is a composite of five measures of manufacturing performance, namely new orders, output, employment,
suppliers’ delivery times and stocks of purchases.

The September PMI reading of 48.3 marked the sixth consecutive month of contraction in manufacturing
activity. A reading below the 50.0 level indicates contraction in activity.

Poor sentiment towards domestic economy, continued depreciation of the ringgit against world major
currencies, and waning domestic demand affected by Goods and Services Tax (GST) implementation in April
likely contributed to the weak PMI reading.

Among the sub-groups, new orders, output and stocks of purchases saw declines in September, albeit at a
slower rate compared to August. Production still declined at a rate above the long run average of the series.
This contributed to the weak PMI reading of 48.3 in September, which is lower than the average index reading
of 50.0 at least in the past three years.
PP7004/02/2013(031762)
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Economic Viewpoint
2 October 2015

New orders suffered the seventh month of decline in September. On the contrary, new export orders pulled up
the best performance, registering growth in September. Solid foreign demand has helped improve export
orders performance, but the slow growth in export orders are likely caused by the global economic slowdown.

Improving demand from overseas likely helped to support employment. Despite a fall in production,
employment unexpectedly increased in September, the first increase since April. The increase was reported to
be modest.

Following lower new orders and production, stock of
purchases fell further in September. Manufacturers
Graph 2: PMI & CEIC Leading Index
also faced inflationary pressure in their purchases,
due to recent ringgit woes. This led to increasing
charges as manufacturers tried to offload their rising
cost burden.

Markit Global PMI has managed to stay in
expansion territory since December 2012. Among
major economies, Japan PMI shows manufacturing
maintaining
expansion.
the
fifth
Eurozone
manufacturing
growth
consecutive
has
but
month
enjoyed
at
a
of
continued
slower
rate.
Meanwhile, Caixin China Manufacturing PMI shows
Source: Dept. of Statistics, Kenanga Research
seven months of manufacturing contraction as the
Chinese economy cools down.
Outlook

September Manufacturing PMI indicates a slower rate of deterioration in the manufacturing sector. However,
the challenging domestic and worldwide economic conditions present a high hurdle for a recovery in coming
months. An analysis of available Malaysia PMI data beginning July 2012 shows Malaysia PMI having a positive
correlation with manufacturing output growth and manufactured goods export growth.

We thus see the manufacturing contraction as indicated by PMI to be a sign of downward pressure to the
country’s GDP growth in the 2H15. Nevertheless the slowdown in manufacturing output is in line with
expectations of moderating GDP growth and widely expected slowdown of the exports of electrical &
electronics (E&E) this year. Expectation of improvement in services, construction, mining and agriculture
sectors would mitigate any shortfall from manufacturing’s contribution to GDP growth. At this stage the
worsening of PMI readings do not warrant a revision to our GDP forecast.

The CEIC Malaysia Leading Index also points to a bleak outlook for Malaysia manufacturing sector. The CEIC
index has fallen to 83.1 in August. This supports our expectation of contraction in the coming months.
PP7004/02/2013(031762)
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Economic Viewpoint
2 October 2015
Table 1: Malaysia Industrial Production Trend (2010=100)
2013
2014
Sep14
Apr15
May15
Jun15
Jul15
Aug15
Sep15
JanSep14
JanSep15
50.3
51.2
51.0
48.8
49.5
47.6
47.7
47.2
48.3
51.1
48.9
New Orders*
Down
Down
Down
Output*
Down
Down
Down
Employment*
Down
Down
Up
Suppliers’ Delivery Times*
Down
Down
-
Stocks of Purchases*
Down
Down
Down
Markit Malaysia PMI
Markit Global PMI
51.3
52.3
52.2
51.0
51.3
51.0
51.0
50.7
50.6
52.5
51.2
CEIC Leading Indicator
102.1
102.5
99.4
87.9
90.4
90.2
89.6
83.1
-
103.4
-
DoS Leading Index
116.0
117.8
118.9
118.6
117.2
117.6
118.6
-
-
117.4
-
Source: Markit Economics, CEIC, Dept. of Statistics, Kenanga Research
*The “Up/Down” movements for sub-indicators are based on Markit’s own reports. Detailed and historical data is available on a subscription basis only.
This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make
any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the
information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank
Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer
to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and
may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act
as principal or agent in dealings with respect to these companies.
Published and printed by:
KENANGA INVESTMENT BANK BERHAD (15678-H)
8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia
Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: http://www.kenanga.com.my
PP7004/02/2013(031762)
Chan Ken Yew
Head of Research
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