KUALA LUMPUR: Malaysia's manufacturing purchasing managers index (PMI) rose to 50.6 in July from 50.4 in June, buoyed by a renewed rise in production levels, according to S&P Global.
S&P Global noted that though only slight, the expansion was the first since December 2021.
It also said companies reported that increased new orders helped boost output. That said, some firms commented that raw material prices remained elevated and supply constraints persisted, holding back a stronger recovery.
S&P Global Market Intelligence chief business economist Chris Williamson said business conditions are improving yet remain tough, with firms struggling against headwinds of falling export demand, persistent supply constraints and rising prices.
However, he said July saw the best expansion in output so far this year, in part reflecting the gradual revival of manufacturing as the worst of the pandemic impact fades.
"Looking at the historical relationship between the PMI and official statistics, the latest reading signalled that industrial production is now increasing gradually after broadly stagnating throughout the first half of 2022, to hint at an encouraging start to economic growth in the third quarter.
“A major uncertainty remains the path of global demand, as recession risks have intensified in the US and Europe, which could severely limit any export-derived growth,” he said.
S&P Global said new order inflows increased at a quicker rate in the latest survey period, extending the current period of growth to four months.,
The rate of growth was the strongest since April, albeit only marginal, and was attributed to improved client confidence.
On the other hand, new export orders declined for the first time since March and at the quickest pace for ten months amid global supply chain issues and subdued overseas demand.
Input costs increased further in July, reflecting higher prices for a range of raw materials and freight costs. The overall rate of inflation eased to the lowest for ten months however as some firms reported lower costs for metals and other commodities. Manufacturers sought to partially pass higher costs to clients by raising output charges.
S&P Global said Malaysian manufacturers reported a further reduction
in capacity pressure at the start of the third quarter, as evidenced by a second successive decline in backlogs of work.
At the same time, businesses reported that workforce numbers were scaled back for the sixth successive month, though the rate of job shedding was only marginal.
Looking ahead, manufacturers displayed stronger optimism regarding the outlook for output over the coming year.
The overall degree of sentiment improved to the highest since February amid hopes of a stronger recovery in demand once price and supply pressures ease following the lifting of pandemic restrictions.