Manufacturing reaches six-month low as SST dampens demand

Manufacturing reaches six-month low as SST dampens demand

KUALA LUMPUR,. Malaysia’s manufacturing sector faced worse decline in business conditions last month compared to October, the Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) released today has showed.

This comes as the index fell to its worst number in six months in November, falling from 49.2 in October to 48.2 in November, due mostly to the faster rate of decline in production and new orders.

Joe Hayes, an economist at analyst firm IHS Markit that compiled the index, suggested that the weaker demand for the year’s fourth quarter may have been caused by the introduction of the Sales and Service Tax (SST) in September.

“Growth prospects for the fourth quarter took a turn for the worse in November, as the headline PMI indicated a second successive monthly decline in the manufacturing sector,” Hayes said in a statement.

“Following the introduction of the Sales and Service Tax in September, panellists have mentioned weaker demand pressures in Q4 so far. Survey data also pointed to slowing order growth from overseas clients in November, following some relative strength in October,” he added.

Malaysia had zero-rated its Goods and Services Tax (GST) in June, before transitioning to the new SST regime.

Nikkei Malaysia said the weaker demand was due to marked decrease in new orders in November, the worst in six months.

Cost has also increased due to the depreciation of the ringgit and higher raw material costs, although the increase was softer than the 11-month peak back in October.

“Despite the downward trend in current output volumes, Malaysian manufacturers expect production to pick up over the next 12 months. Forecasts of improved demand and planned new product introductions underpinned the optimistic view.

“That said, confidence eased as some firms raised concerns about the wider economy,” said the report.