Decline in Production

Malaysia's industrial production (IP) for June 2023 declined by -2.2% y/y (May 2023: 4.8% y/y) although the index increased by 2.2% (May 2023: 7.3%) from monthly perspective. The manufacturing sector saw a contraction of 1.6% y/y (May 2023: 5.1% y/y), and the mining sector also fell by 6.4% y/y (May 2023: 2.9% y/y). The electricity sector, on the other hand, experienced growth of 2.8% y/y (May 2023: 5.9% y/y).

By industry type, domestic-oriented industries grew by 4.1% y/y (May 2023: -10.1% y/y), while export-oriented industries declined by 3.9% y/y (May 2023: 2.8% y/y). Notably, this marks the seventh consecutive month where growth in domestic-oriented industries has outpaced growth in export-oriented industries.

Slower Production Within Key Manufacturing Sectors

The manufacturing sector experienced a decline in output, where the subsectors that contributed to this downturn were petroleum, chemical, rubber & plastic products, which decline by 4.6% y/y, followed by electrical & electronics products, which fell by 3.6% y/y, and wood products which saw a marginal contraction of 0.2% y/y.

Among export-oriented sectors that were affected are coke & refined petroleum products, computer & electronics, and rubber products. However, domestic-oriented industries continued to grow at a moderate rate of 4.1%, led by fabricated metal products, food processing, and basic metals manufacturing.

Our Take

Overall, we expect a slowdown in production activity for the remainder of the year. Manufacturing activities among most developed and neighbouring countries have continued to decline, as indicated by the latest manufacturing PMI numbers which remained below the contractionary yardstick. Additionally, trading activities with major partners like Singapore, China, and the US have been disappointing throughout the year.

On the domestic front, Malaysia's latest manufacturing PMI improved slightly to 47.9 in July 2023 (June 2023: 47.7), but it still remained below the contractionary level. The main reason for the reading below 50.0 was a significant decrease in new order volumes, which have been moderating for the past 11 months. Firms cited subdued confidence in both domestic and international markets as contributing factors.

Against the backdrop of IP declining by 0.3% in 2Q2023 and slower trading activities, we expect the 2Q2023 GDP (to be officially published on 18 August) to be in the range of 3.9% to 4.4% (1Q2023: 5.6%). We maintain our view that the economy will grow by 4.5% in 2023, primarily supported by domestic factors, including private consumption and investment realisation.

Source: AmInvest Research - 9 Aug 2023