Malaysia's Industrial Production Index (IPI) growth transitioned into positive terrain, rising to +4.3% YoY in January from a prior reading of -0.03% YoY in December 2023, higher than market projections of +2%, despite continued challenges stemming from diminishing foreign demand. The increase in IPI was supported by all three key sectors. The manufacturing sector rose to +3.7% YoY in January after recording a decrease of 1.4% in December 2023. Meanwhile, the mining sector accelerated by 5.0% YoY in January as compared to 4.1% in December 2023, induced by natural gas production and crude oil & condensate output. The electricity sector ascended by 8.3% YoY in January (4.1% in December 2023).
In 2024, we anticipate improved growth prospects for the industrial sector. External demand will be the key risk factor affecting the Malaysian economy. The government and central bank expect economic growth of 4-5% in 2024, while we expect it to hover around 4.7% for this year, subject to more significant impact on the downside risks.
The rise in manufacturing production is primarily attributed to domestic- oriented industries, which experienced a sustained growth of 8% during the observed month, compared to 4.2% in December 2023. Likewise, export- oriented industries saw improvement, with a YoY growth of +1.6% in January compared to -4.1% in December 2023. As for export-oriented industries, production of electrical & electronic (E&E) products recorded an improvement of 0.9% YoY in January (-6.7% in December 2023), influenced by manufacture of computer, electronics and optical products, electrical equipment as well as machinery and equipment. However, exports of E&E goods continued to decline by 6.5% YoY in January (-12.1% in December 2023), despite the recent improvement in the global semiconductor market.
Meanwhile, production of other manufactured goods, such as petroleum, chemical, rubber and plastic products improved by 2.5% YoY in January, from a negative growth of 2.7% in December 2023. Similarly, the output of textiles, wearing apparel, leather products and footwear rose to +2.1% YoY in January from -2.3% in December 2023 amid positive production growth of all three subsectors. Meanwhile, the output of wood, furniture, paper products and printing rose by 6.1% YoY in January, from 3.7% in December 2023.
In January, domestic-oriented industries continued to demonstrate growth, with the food, beverage, and tobacco subsector sustaining a YoY increase of 4.6%, slightly lower than the 5.7% recorded in December 2023. Similarly, production in the transport equipment and other manufacturers category saw a notable improvement, rising to 8.9% YoY in January, compared to a decrease of 0.5% in December 2023.
The World Trade Organization (WTO) forecasts a 3.3% expansion in global trade for 2024, in line with a steady 2.5% global GDP growth rate. Trade is expected to outpace GDP growth in 2024, reflecting the influence of business-cycle sensitive investment and durable goods. Risks to the forecast include a potential slowdown in China and a resurgence of inflation in advanced economies, possibly necessitating prolonged higher interest rates. Conversely, rapid inflation declines, enabling an early shift from contractionary monetary policies, could lead to growth exceeding expectations.
Source: PublicInvest Research - 13 Mar 2024