Malaysia’s Production Improved

Malaysia industrial production (IP) for February 2023 improved to 3.6% y/y (February 2023: 1.8% y/y). However, on month-on-month basis, IP declined by 5.1% (February 2023: -2.3% m/m), marking the third month of decline. By type of industry, the export-oriented industries grew at 3.9% y/y (February 2023: 0.6% y/y), and the domestic-oriented industry improved to 7.0% y/y (February 2023: 2.7% y/y).

Manufacturing and Electricity Drive Growth

Production in the manufacturing and the electricity sector were the driver, growing by 4.9% y/y (February 2023: 1.3% y/y) and 1.1% y/y (February 2023: -4.3% y/y), respectively. Nevertheless, both production declined on a month-on-month basis.

Within the manufacturing sector, production for key selected sub-sector improved, including food, beverages & tobacco (+11.3% y/y), transport equipment & other manufacturers (+8.3% y/y), and non-metallic mineral, basic & fabricated metal (+6.5% y/y). More breakdown is depicted in Exhibit 2.

Production in Mining Declined

Production in the mining sector however, declined by 0.5% y/y (February 2023: 5.9% y/y), mainly due to contraction in the crude oil & condensate production (- 0.3% y/y), and natural gas production (-0.5% y/y). The contraction could be due to the slower demand from major external partners in parallel with the slowing global economy. A similar case applies for the export-oriented sector that slowed down in February 2023. For the record, crude oil price was subdued in Feb-Mar 2023 period as the positive impact from China’s reopening on global activities has been slower than previously anticipated.

Our Take

We expect slower production going forward as guided by recent information flow. The manufacturing PMI which has been under the contractionary level since September 2022 while the export-oriented segment, which accounted around twothirds of the manufacturing sector has also been trending lower over the same period. Pessimism in global economy is largely due to series of interest rate hikes which is among the steepest in history and at the same time, inflations proven to be stickier than initially expected. Overall, we expect Malaysia’s economy to grow at 4.5% for 2023, mainly supported by domestic factors including improving labour market, investment realisation, and improvement in construction and agriculture sectors.

Source: AmInvest Research - 12 Apr 2023