Executive Summary

Contraction in September, led by Mining sector. Malaysia’s industrial production index (IPI) posted a marginal contraction 0.5% y/y September 2023 after recording negative growth of 0.3% in the month prior. The mining index, which carries about 25% weight, largely contributed to such a performance with this sub-index declining 5.2% over the same period. The manufacturing segment posted a 0.4% y/y increase in September after contracting in the previous three months and the improvement was largely driven by domestic-oriented industry which posted a 5.9% gain. Export-oriented industries with approximately 46% weightage in the index recorded negative growth for the fourth month, posting 2.0% contraction in September 2023.

GDP on track for 4.0% growth in 2023. Manufacturing production is expected to remain under pressure in the near term as guided by the Manufacturing PMI index which continues to gyrate in the contractionary region. We see the situation to improve in 2024 with the World Trade Organization (WTO) is looking at a rebound in global exports and the International Monetary Fund (IMF) upgrading its GDP forecast for China to 4.6% in 2024. We reiterate our 2023 GDP growth forecast of 4.0% for Malaysia and 4.5% for 2024.

Contraction in September, led by Mining sector

Malaysia’s industrial production index (IPI) posted a marginal contraction 0.5% y/y September 2023 after recording negative growth of 0.3% in the month prior. The mining index, which carries about 25% weight, largely contributed to such a performance with this sub-index declining 5.2% over the same period after production of crude petroleum and natural gas fell by 1.4% and 7.8% respectively. Meanwhile, electricity production, which has the lowest weightage at 6.6% posted gained 2.5% y/y over the same period, sustaining its positive momentum for fifth consecutive month. Manufacturing segment posted 0.4% y/y increase in September after contracting in the previous three months and the improvement was largely driven by domestic-oriented industry which posted 5.9% gain during the same period under review, an improvement from 4.2% in August. According to the Department of Statistics Malaysia (DOSM) Chief Statistician Dato’ Sri Mohd Uzir Mahidin, this upturn was underpinned by the manufacture of fabricated metal products, except machinery & equipment (9.6%); manufacture of food processing products (8.2%); and manufacture of other non-metallic mineral products (8.0%).

Still on manufacturing, export-oriented industries with approximately 46% weightage in the index recorded negative growth for fourth month, posting 2.0% contraction in September 2023 though it’s a slight improvement compared to a 2.6% decline in the month prior. Among segments contributing to the contraction were the manufacture of coke & refined petroleum products (-7.7%) and manufacture of textiles (-6.8%). The decline in export-oriented industries is replicative of Malaysia’s external trade performance where overseas shipments has been contracting for seven months since March 2023 though posting an improvement in September with smaller decline of 13.7%.

GDP on track for 4.0% growth in 2023

Manufacturing production is expected to remain under pressure in the near term as guided by the Manufacturing PMI index which continues to gyrate in the contractionary region. We see the situation to improve in 2024 with the World Trade Organization (WTO) is looking at a rebound in global exports. In addition to that, the International Monetary Fund (IMF) had recently upgraded its GDP forecast for China by 40 bps to 4.6% in 2024 hence offering some hopes for improved manufacturing activities. That being said, escalated geopolitical risk, prolonged period of high interest rates and uncertainty concerning China’s real estate market are key risk factors which could impair this outlook. We reiterate our 2023 GDP growth forecast of 4.0% for Malaysia and 4.5% for 2024.

Source: AmInvest Research - 8 Nov 2023