KUALA LUMPUR (Aug 1): Malaysia’s manufacturing sector’s deterioration of operation conditions in July was worse than the average for the first half of 2017, according to the latest Nikkei Purchasing Managers’ Index (PMI) released today.

The headline Nikkei Malaysia Manufacturing PMI rebounded to 48.3 in July, from its all-time low of 46.9 in the previous month, but persistent weakness in several key indices saw it remaining below the average of the first half of this year at 48.9 and the 50-threshold level that separates contraction from expansion.

“The Malaysian manufacturing sector continued to struggle in the face of tepid demand, particularly from within the domestic economy, during July. Output, purchasing activity and inventories were all cut as near-term prospects remained bleak,” said Paul Smith, director at IHS Markit, which compiles the survey.

Recall Malaysia’s PMI had only breached the 50-level in April this year.

Markit said the degree to which output fell was weaker than in June, but nonetheless was still marked.

“Falling levels of new orders, linked to underwhelming market demand, was the primary factor behind the deterioration in sales. Weakness in the domestic market was key reason for reduced overall new sales, foreign sales were broadly unchanged in July,” it said.

The survey also showed backlogs of work continued to decline for the third time in the past four months, with the rate of contraction the greatest recorded by the survey, since data were first collected over five years ago.

The weak trend in new orders was widely reported to have enabled firms to reduce their unfinished works, with poor near-term prospects leading to reductions in stocks of both purchases and finished goods.

The report on the survey however, said the longer-term expectations were seen as more positive, with respondents on average anticipating a rise in production over the coming 12 months.

“Expected growth underpinned a slight increase in employment, the second time in the past three surveys that a rise in workforce numbers has been recorded,” the report said.

On this, Paul said companies were hopeful of an improvement in operating conditions over the medium-term, expecting growth to occur in the next 12 months.