Malaysia’s manufacturing activities remained subdued in August due to weak demand, and the latest data suggests that the coming months are also likely to remain sluggish, S&P Global reported on Monday.

The seasonally adjusted Malaysian manufacturing purchasing managers index (PMI) remained unchanged at 49.7 last month, according to S&P's survey.

A PMI reading above 50 indicates growth in manufacturing activity, while a reading below 50 indicates contraction in the sector.

The latest reading also indicated that Malaysia's economy is likely to expand in the third quarter at “a broadly similar rate” to that observed in the second quarter, according to S&P Global.

“However, further evidence was provided to indicate that conditions are likely to remain subdued in the short term. Firms opted to work through existing orders in the absence of new order growth, while they also scaled back purchases, employment and stock holdings,” said S&P economist Usamah Bhatti.

In August, demand remained generally weak, leading firms to reduce production at the steepest rate in four months, The Edge Malaysia reports.

Survey data suggested that the coming months will likely remain muted, as manufacturers are cutting back on purchasing activity and reducing stocks of purchases and finished goods due to a lack of new orders.

In regard to employment, manufacturers reported a slight decline for the second consecutive month, indicating that there is sufficient capacity to handle the reduced business, which fell to its largest extent since April.

Furthermore, companies surveyed by S&P also reported a significant rate of input cost inflation midway through the third quarter, attributing it to rising raw material prices, particularly those sourced from abroad, due to exchange rate weakness. 

In response, production charges were increased for the fifth consecutive month, with both input and output prices rising at their fastest pace since September 2022, according to S&P.

Yet despite current challenges, manufacturers are optimistic that new orders will eventually return to growth, bolstering confidence that production will increase over the next 12 months. 

S&P noted that the overall level of optimism is “solid but weaker” compared to the long-term average.

“That said, firms mentioned that they remained unsure regarding the speed of the recovery, with downside risks centred around a muted global economy,” Bhatti added.