Overview of the Malaysian Manufacturing Sector’s Performance in March 2024

The Malaysian manufacturing sector exhibited signs of further moderation in March 2024, with the S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) marking a decline to 48.4 from February’s 49.5. This downturn signifies a continued weakening in the health of the manufacturing sector, attributed primarily to subdued demand conditions both domestically and in international markets. The sector has experienced a moderation in sales for an 11th consecutive month, indicating persistent challenges in stimulating demand.

Detailed Analysis of Sectoral Performance

March saw a notable decline in new orders, output, and employment within the Malaysian manufacturing sector. These indicators scaled back significantly, marking the most pronounced rates of reduction since the beginning of 2024. This downturn is largely due to the muted demand environment, which has not only impacted sales but also led to an improvement in supplier performance, as delivery times shortened considerably.

Despite a slight increase in input price inflation, prices charged for Malaysian manufactured goods remained unchanged, as manufacturers attempted to boost sales by lowering output prices. This strategy, however, has not translated into increased demand, as business optimism has faltered to a seven-month low, with firms expressing concerns over the prolonged period of demand weakness.

Impact on Employment and Supply Chains

The reduction in new orders and output has inevitably led to adjustments in employment, with manufacturers scaling back on workforce numbers for the third consecutive month in March. The rate of job shedding, while marginal, was the steepest observed in four months, aligning with firms’ efforts to reduce headcount in accordance with capacity requirements.

Furthermore, the muted demand has enabled firms to reduce their backlogs of work significantly, with the rate of depletion reaching its highest since last October. This has also influenced purchasing activity, stocks of inputs, and inventories of finished goods, all of which were scaled back at the end of the first quarter.

Price Inflation and Business Outlook

Input cost inflation ticked up to a three-month high in March, driven by currency weakness and higher global prices for raw materials. Despite this, the rate of inflation remained below the series average, and prices charged for manufactured goods were left unchanged, ending a seven-month sequence of inflation.

Looking ahead, firms remain hopeful of an improvement in demand over the coming year. However, the overall level of confidence has eased to the softest since last August, reflecting manufacturers’ concerns about the timing of a recovery in demand. This cautious optimism underscores the challenges facing the Malaysian manufacturing sector as it navigates through a period of muted demand and seeks pathways to recovery.