KOTA KINABALU,. Local manufacturing performance declined at the start of the fourth quarter and coinciding with the reintroduction of the Sales and Services Tax (SST), Nikkei Malaysia said today.
In its monthly Purchasing Managers Index (PMI) that is used to gauge the health of the sector, Malaysia went from 51.5 in September to 49.2 last month. A PMI score of below 50 denotes contraction while a score of above 50 signals expansion.
The survey showed that although output was only slightly lower than in September, new orders declined at the fastest pace in five months, accompanied by a drop-off in recruitment rates as firms look to cut costs.
“Survey data are showing the initial impact on the real economy that the implementation of the Sales & Services Tax (SST) is having,” said IHS Markit economist Joe Hayes, who helped compile the survey.
“At a time where global raw material prices are rising and the domestic currency is weakening, the SST introduction has fuelled a further month of sharp input cost inflation in Malaysia’s manufacturing sector,” said Hayes.
Input inflation also quickened to the fastest in almost a year. In line with higher purchasing costs, buying activity declined for the first time since July.
One silver lining was an increase in foreign orders, which rose at the highest rate in nine months, with notable destinations being the US and Malaysia’s neighbours.
Looking ahead, businesses expect output levels to increase over the coming year.
Despite falling orders, respondents expressed optimism with the anticipated arrival of new projects over the next 12 months.