Malaysia's Manufacturing Sector Slows Down: PMI Falls to 48.6, Costs Rise Slowest Since June 2020

Malaysia's manufacturing sector experienced a significant slowdown in December 2024, as indicated by the seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) falling to 48.6 from 49.2 in November. This marked the sharpest decline since March 2023 and reflected muted trends in the sector as the year ended. The PMI reading below 50 signals a contraction in the manufacturing sector, which is a significant contributor to Malaysia's GDP.

Input price inflation slowed sharply in December, reaching its lowest point in a 55-month sequence of cost increases. This contributed to only a fractional increase in output charges. S&P Global Market Intelligence economist Usamah Bhatti noted that the final round of 2024 PMI data suggested that demand conditions in the Malaysian manufacturing sector remained subdued in December, as production and new order inflows moderated at modest rates. However, the data still indicated that GDP growth seen in the third quarter of the year continued, albeit at a softer pace.

The slowdown in input price inflation can be attributed to several factors, including changes in global commodity prices and domestic policy measures such as the rationalization of fuel subsidies and the minimum wage increase. Improvements in supply chain efficiency and inventory management practices have also played a significant role in the sustainability of the slowdown in input price inflation.



The muted trends in the manufacturing sector are expected to contribute to a softer pace of GDP growth in Q4 2024 and a slight moderation in GDP growth for 2025. The decline in new order inflows and production output could negatively impact Malaysia's export performance and trade balance in the near term. However, the slowdown in input price inflation has the potential to ease inflationary pressures on Malaysia's overall inflation rate and boost consumer spending in the coming months.



In conclusion, the slowdown in Malaysia's manufacturing sector, as indicated by the PMI data, has the potential to impact the overall GDP growth rate, export performance, and trade balance in the near term. However, the easing of input price inflation can have positive implications for Malaysia's inflation rate and consumer spending in the coming months. The government's domestic policy measures and improvements in supply chain efficiency have contributed to the sustainability of the slowdown in input price inflation. As the sector continues to evolve, it will be crucial to monitor the situation closely to assess the extent of these effects and adapt accordingly.