KUALA LUMPUR (Jan 3): The Malaysian manufacturing sector reported a further increase in growth momentum at the end of 2021, as operating conditions improved at the quickest rate since April.

IHS Markit said businesses reported faster expansions in both production levels and new orders as the manufacturing economy rebounded following the lifting of pandemic restrictions and demand recovered.

Despite the additional pressure on production lines, manufacturers scaled down workforces in December.

The headline IHS Markit Malaysia Manufacturing Purchasing Managers’ Index (PMI) — a composite single-figure indicator of manufacturing performance — rose from 52.3 in November to 52.8 in December, indicating a stronger improvement in the health of the sector.

IHS Markit said that as a result, the average performance over the final quarter was the strongest quarterly performance since the survey began in 2012.

It said looking at the historical relationship between the PMI and official statistics, the latest reading is representative of a solid expansion in manufacturing production and GDP, as the survey pointed to a broad recovery from the impact of COVID-19.

December data suggested that output rose for the third month running.

The pace of expansion was moderate and was the quickest since April.

Firms commonly attributed the rise to stronger demand as pandemic restrictions were eased.

New order volumes also increased at the end of the year, with the rate of growth reaching an eight-month high.

Firms noted that stronger client confidence had boosted demand in both domestic and external markets.

Concurrently, new export sales returned to expansion territory in December, as stronger demand in the US and China contributed to a fractional rise in new business from abroad.

IHS Markit said firms also highlighted a fifth consecutive rise in outstanding business in December as a lack of raw materials and labour placed additional strain on capacity as new orders improved.

Despite pressure on capacity, there was a renewed fall in employment at Malaysian manufacturing firms, with producers often noting a lack of foreign work permits being issued due to ongoing border restrictions.

Looking ahead, IHS Markit said Malaysian manufacturers remained optimistic regarding the year-ahead outlook for output.  It said expectations eased slightly from November, yet were strong overall and above the long-run average.

Optimism was underpinned by hopes that the pandemic would subside and induce a broad recovery in supply chains and the economy.

IHS Markit economist Usamah Bhatti said the further easing of COVID-19 restrictions alleviated pressures faced by the Malaysian manufacturing sector and provided momentum to growth in December.

Bhatti said the average reading of the headline PMI in the fourth quarter was the strongest quarterly performance recorded since the survey began in July 2012, as output and new order growth reached eight-month highs respectively.

“Operating conditions remain tough nonetheless, with supply chain delays as well as material labour shortages widely reported across the sector.

“Encouragingly, business expectations for the coming year remained strong overall as a fifth of companies reported optimism that the worst of the pandemic had passed.

“That said, the degree of optimism eased from November as the outlook remained relatively clouded due to uncertainty regarding the duration of supply chain disruptions, raw material shortages and further disruption caused by new variants of COVID-19,”said Bhatti.