Malaysia – IP and retail sales grow healthily in May 2022

Highlights

Malaysia’s Industrial Production Index (IPI) for the month of May 2022 rose 4.1% y/y, albeit much lower than Bloomberg’s consensus of 6.3% and slightly slower than April’s figure (4.6% y/y).

Component-wise, the growth was driven by the robust expansion in the manufacturing sector at 6.9% y/y (April: 6.2%) and electricity at 2.8% y/y (April: 1.5%), while the mining sector remained underwhelmed as it declined 4.9% y/y (April: -0.2%). On a monthly basis, the seasonally adjusted headline index fell 2.9% m/m, while manufacturing and mining contracted by 2.5% and 4.4%, respectively, but electricity grew 0.5%.

The E&E sub-sector was the biggest growth contributor among manufacturers with a 15.5% y/y growth, followed by transport equipment at a 12.4% y/y expansion, and wood products, furniture, paper products & printing with an 8.1% y/y increase.

Meanwhile, Malaysia’s distributive trade remained strong with total retail sales value growing 29.9% y/y, wholesale rising 11.7% y/y, and motor vehicles surging 20.1% y/y, taking advantage of the SST exemption.

Key Takeaways

Despite the slower overall growth in May 2022 due to a higher base effect, we remained positive that the local economy will continue growing healthily for the second quarter of 2022. Domestic-oriented manufacturing expanded faster at 8.7% y/y (April: 7.0%), while export-oriented manufacturing climbed 6.1% y/y (April: 5.8%).

We believe that the full potential of Malaysia’s industries has not been realized yet amidst the ongoing supply chain disruption worsened by the stringent zero-Covid policy implemented in China, heightened global volatility due to an aggressive interest rate hike cycle, labour crunch and elevated input prices.

Nonetheless, the still robust upswing in global E&E products, the transition towards endemicity, and a more robust domestic demand will continue to boost the local economy. With new approved investment reaching RM42.8 billion during the first quarter of 2022, we foresee that the local industrial output can only grow positively moving forward.

Nevertheless, we are watching for deteriorating downside risks which can threaten domestic economic growth. The rising global interest rate environment can slow the economy or worse, tipping it into a recession. Plus, a weakening ringgit can push input prices further upwards and dampening output.

Our monthly GDP projection for May 2022 is 6.0% while our full-year expectation is maintained at 5.6% with the downside of 4.8% and upside of 6.0%.

Source: AmInvest Research - 12 Jul 2022