Malaysia's Purchasing Managers' Index (PMI) rose to 49.1 in December, from 48.4 in November, the highest since the 49.3 reading in August, said IHS Markit.
In a statement today, it said the rise in the composite single-figure indicator of manufacturing performance demonstrated a further improvement in the health of the manufacturing sector.
"Malaysian manufacturers pointed to a renewed path towards stable operating conditions in the final month of 2020. Although production volumes and sales moderated further, employment levels were broadly stable for the first time since May. However, ongoing disruption caused by the coronavirus disease 2019 (Covid-19) pandemic presented difficulties in sourcing and receiving raw materials, resulting in longer delivery times and a sharp increase in input cost faced by firms in the Malaysian manufacturing sector," IHS Market noted.
It added that based on the historical relationship between the PMI and official statistics, December's figures showed an annual growth in both industrial production and gross domestic product (GDP). However, the survey also clearly indicated that the Covid-19 pandemic continued to impact the economy.
"December data suggested that output and new orders remained subdued. The respective rates of moderation were broadly similar to those seen in November as market demand continued to be dampened by the impact of the Covid-19 pandemic. Foreign demand for Malaysian manufactured goods also fell back, albeit with the pace of reduction easing as some firms reported returning orders from markets outside Asia.
"More positively, Malaysian goods producers signalled a broad stabilisation in employment levels. Preparation for orders in the future required additional capacity, pushing the survey’s employment index to the highest in nine months in December.
IHS Markit noted that the requirement of additional staff also signalled rising pressure on operating capacity, with backlogs of work in December falling to the lowest level since June.
Meanwhile, input cost rose for the seventh straight month, reflecting higher prices of raw materials and logistics cost, notably shipping cost.
"The rate of input cost inflation accelerated to the fastest in just over three years, and was sharp overall. Manufacturers partially passed these higher costs through to clients in the form of higher output charges, which rose at the quickest pace in 32 months," it said.
Supplier delivery times rose to the greatest extent since May due to shortages of raw materials and delays in receiving shipments, while inventory levels declined.
According to IHS Markit, some businesses were reluctant to hold onto pre- and post-production goods during the latest survey period, while others said restocking efforts were hobbled by a delay in supplies.
"Looking ahead, Malaysian manufacturers were cautiously optimistic regarding the outlook for output in the coming year. Although firms continued to record positive sentiment, optimism eased to the softest since August. Panel members attributed the positive outlook to hopes of a recovery in both domestic and external demand that would boost production levels over the next 12 months," it said.
Source: The Edge Markets