Malaysia’s Production Continued to Moderate

During the first month of 2023, the domestic industrial output sustained its growth albeit at moderate pace of 1.8% y/y, compared to 2.8% y/y reading in the prior month. It marked the slowest annual growth pace since August 2021 when the country was still struggling with pandemic restrictions. On a month-to-month basis, it declined 2.3%, after the decline of 0.6% in December 2022. This reflects slower global economic activities which have already been preluded by the S&P Global Malaysia Purchasing Managers’ Index (PMI). The PMI was last spotted at 48.1, marking sixth consecutive months in contractionary region.

Mining & Manufacturing Drive Growth

Sector-wise, mining and manufacturing were the sectors that posted positive annual growth. Mining expanded faster at 5.9%, driven mainly by crude oil & condensate with 8.0% growth (December 2022: 4.2%), and natural gas at 4.5% y/y (December 2022: 3.7%), supported by persistent global demand towards energy in light of ongoing geopolitical risk.

Meanwhile, manufacturing sector expanded by 1.3% (December 2022: 3.0%). We saw E&E sector logged a marginal growth of 0.4% (December 2022: 7.2%), while other segments such as transport equipment & other manufactures grew 8.0% (December 2022: 8.5%), food, beverages & tobacco rose 4.4% (December 2022: 3.4%) and petroleum, chemical, rubber & plastic expanded 2.0% (December 2022: -0.9%). However, electricity sector experienced 4.3% contraction, the fourth backto-back month of decline (December 2022: -2.2%) which could be reflective of tapering economic momentum.

Subdued Export-oriented Industries Reflect the Slowing Global Trade

Among manufacturers, we saw output in export-oriented industries grew marginally by 0.6%, the slowest pace May 2020 when the pandemic started (December 2022: 2.6%), underpinning the effects of tightening policy by global central banks. In addition, domestic-oriented industries also posted a slower growth of 2.7% compared to 3.8% in the prior month.

Retail Sales Remained Robust

Malaysia’s distributive trade sales grew 12.4% to record a total sale of RM135.1 billion. It was driven by double-digit growth of retail trade at 21.7% (December 2022: 22.7%), and motor vehicles at 20.1% (December 2022: 20.3%), coupled with wholesale trade at 3.1% (December 2022: 4.7%). Looking at consumerrelated trades, growth was supported mainly by sales of automotive fuel, other goods in specialised stores and sales in non-specialised stores such as hypermarket and convenience stores among others.

If we are to take this together with the double-digit growth in volume of credit card and debit card spending, both last spotted at 13.7% (December 2022: 18.9%) and 58.0% (December 2022: 52.4%), respectively, this somewhat confirm our earlier hypothesis that domestic demand is in a good shape to defend the economy against impending global headwinds.

Our Take

We continue to see the effects of global monetary policy tightening on global trade. In relation to that, Malaysia’s E&E output growth is turning flat, reflecting a slowdown in global trade. While IPI may have not bottomed, we see China’s reopening as the mitigating factor to any sharp decline. All in all, we reiterate our 2023’s growth projection to be around 4.5%.

Source: AmInvest Research - 14 Mar 2023