Malaysia’s Industrial Output Slowed

Malaysia’s industrial production index (IPI) grew at a lower rate of 3.0% y/y in December 2022 (cons.: 4.4%), compared to November 2022’s of 4.8% y/y. This is the slowest growth pace since September 2021. From monthly perspective, the same index declined 0.6% m/m after posting 0.9% growth in the previous month. For the full year of 2022, the IPI registered 6.9% growth, slightly lower than 7.2% in the previous year.

Manufacturing and Mining Continue to be at the Helm of Growth

Albeit at slower pace, both manufacturing and mining sector were the main drivers of industrial output growth. The former saw a 3.0% annual growth during the month under review (November 2022: 4.8%), supported by transport equipment & other manufacturers (8.5 y/y), E&E products (7.2% y/y), and food, beverages & tobacco (3.4% y/y). The latter, meanwhile, expanded by 4.1% y/y with growth was seen across the board (November 2022: 6.1%). However, the downside came from electricity sector which had declined by 1.1% y/y (November 2022: +0.7%). While performance was generally weaker in the final month of the year, the full year 2022 still witnessed positive results with manufacturing growing at 8.3% y/y, mining at 3.1% y/y, while electricity at 4.7% y/y.

Manufacturers Facing Moderating Orders

In the manufacturing sector, export-oriented industries grew slower by 2.7% y/y (November 2022: 5.1% y/y), while domestic-oriented industries grew 3.8% y/y (November 2022: 4.3% y/y). This is in tandem with moderating order books as reported by S&P Global Purchasing Managers’ Index (PMI).

China’s reopening should improve the global supply chain situation which is likely to result in lower input prices. This outcome is expected to mitigate part of negative implication to manufacturers brought by slower global demand.

Our Take

Industrial output was generally robust in 2022 but we expect the momentum going forward to be affected by softening global economic activities in 2023 as cumulative effects from monetary policy tightening among major central banks start to show the impact. On the other hand, we see China’s reopening as a positive sign to cushion the impact from impending global economic slowdown. On the domestic front, interest rate level remains accommodative hence we continue to see support coming from private consumption. Our preliminary estimate shows GDP for 4Q22 to be in the range of 6.5 – 7.0% which is slower than 14.2% in the prior quarter, which also partly due to dissipating favourable base effects. We maintain our 2022 GDP growth estimate of 8.5% - 9.0%, and 4.5% forecast for 2023

Source: AmInvest Research - 8 Feb 2023