Malaysia’s PMI data suggest that the 3Q19 GDP growth may soften as compared with 2Q19. — Reuters photo
KUCHING: Manufacturing activity slowed further in July, analysts note, and the latest Malaysia’s Purchasing Manager’s Index (PMI) data suggest that the third quarter of 2019 (3Q19) gross domestic product (GDP) growth may soften as compared with 2Q19.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) recalled that manufacturing activity slowed further in July, remaining in a ‘contractionary’ mode for the tenth consecutive month.
“The deterioration in the PMI was attributable to softer demand conditions, amid a challenging business environment.
“July’s PMI reading stood at 47.6, a tad lower than 47.8 recorded in the preceding month,” Kenanga Research said.
According to AmInvestment Bank Bhd (AmInvestment Bank), manufacturing players continued to report tougher business environment due to lacklustre demand conditions which had put a strain on production, and discourage firms from hiring.
“Although, our domestic players reported a net inflow of new businesses from abroad, in particular from the US, Japan, and Turkey, the overall demand condition remains challenging on the back of stiff competition,” AmInvestment Bank said.
“As a result, the survey suggests that the local firms are having difficulties securing more new work, citing concerns over slowing global economic growth and geopolitical tensions as their key headwinds.
“However, manufacturers indicated that their business optimism remained strong in July, albeit a slight pullback from the peak in June, supported by new projects, expansion plans, and more aggressive marketing.”
The research firm noted that the latest Malaysia’s PMI data suggests that the third quarter of 2019 (3Q19) gross domestic product (GDP) growth may soften as compared with 2Q19.
“However, based on the historical PMI reading, it suggests that the PMI’s current level may keep GDP growth at 4.5 per cent, which is in line with our forecast.
“Nevertheless, our concern at this is juncture is that we are still not seeing signs of global manufacturing sector bottoming out.
“As such, the risk to the economy is still tilted to the downside. Based on our assessment, our worst-case scenario suggests that GDP growth can hit as low as four per cent should the headwinds intensify.”
Kenanga Research also highlighted that there is no clarity whether the trade deal between US and China would be finalised anytime soon or even a clearer path to more substantive future talks.
“Hence, this supports our view to remain cautiously optimistic on manufacturing activities given the rise of external risk.”
Overall, the research arm expected GDP growth to moderate to 4.5 per cent in 2019, compared to 4.7 per cent 2018, on the back of slowdown in key export markets and an expectation of softer domestic demand.