TOKYO -- The Nikkei Malaysia Manufacturing Purchasing Managers' Index, or PMI, dropped to 46.9 in June from 48.7 in May, recording the lowest reading in the survey's five-year history.
A reading above 50 indicates economic expansion, while one below 50 points to a contraction.
Both output and new orders decreased solidly in June, according to IHS Markit, which compiles the survey. Production fell at the fastest rate since last June.
"With underlying demand worsening, good producers took steps to limit workforce growth and streamline inventories -- employment stagnated and stocks of purchases fell at a survey-record rate," said Paul Smith, senior economist at IHS Markit.
"However, firms' optimism was undeterred, with sentiment instead improving since May. A number of panelists predicted a turnaround in client demand," the economist said.
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