According to the latest release of Nikkei Malaysia's Manufacturing Purchasing Managers Index (PMI), conditions in the already-struggling sector deteriorated further in the current quarter, with sharp declines in both orders and production.
“Production at Malaysian goods producers contracted for the fourteenth successive month in May. In fact, the rate of decline was the sharpest in over three-and-a-half years,” Nikkei Malaysia said.
“Similarly, new orders decreased for the fifteenth month running, with the latest decline the fastest since December last year.”
The PMI remained stagnant at 47.2 last month, extending the five-year low registered in April. Any number greater than 50 in the index represents an improvement in the sector.
Factories have also scaled back their purchases of raw material for 12 consecutive months, prompted by rising prices as well as declining orders.
Nikkei Malaysia said both the weak ringgit and high sales tax made it more expensive for manufacturers to operate.
“Moreover, the rate of inflation was the sharpest since February. As a result, manufacturers raised their charges to the greatest extent since December last year,” it added.
Despite the decline in output and orders, however, factories increased their hiring in May, although Nikkei Malaysia described the improvement as “slight”.
Malaysia is banking on exports to achieve its targeted gross domestic product growth of between 4 and 4.5 per cent this year, as high household debt and rising inflation weigh on consumer spending.
Household debt here has reached 89.1 per cent as a ratio of GDP or over RM1 trillion.
Slowing global demand also negated the export advantages of the weak ringgit, which is currently trading at 4.14 versus the US dollar.
Malaysia's trade balance fell to RM6.8 billion in the last quarter, down from RM11.4 billion in the final three months of 2015.
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