Malaysia's Industrial Production Index (IPI) registered a robust growth of 5.0% YoY in June, accelerating from 2.4% YoY in May and marking its sixth consecutive month of positive momentum. This growth slightly surpassed market expectations of 4.7%, driven by stronger output in the Manufacturing sector (+5.2% YoY) and the Mining sector (+4.9% YoY), while the Electricity sector also contributed with a 3.5% YoY increase. Looking ahead to the remaining months of 2024, we expect the industrial sector to maintain its growth trajectory, supported by sustained domestic demand and recovery in global markets. However, the sector's outlook remains contingent on external demand dynamics, which pose a significant risk to Malaysia’s industrial performance amid ongoing global uncertainties.
The rise in manufacturing production in June was driven by both domestic- and export-oriented industries, reflecting a balanced contribution to the sector's growth. Domestic-oriented industries posted a growth of 4.6% YoY, moderating from 6.4% in May, while export-oriented industries recorded a YoY increase of 4.6%, up from 3.7% in the previous month. Within the export- oriented segment, production of electrical & electronic (E&E) products grew by 3.7% YoY in June, down from 6.9% in May, largely supported by the manufacture of computers, electronics, and optical products, as well as machinery and equipment. Despite the overall growth in production, exports of E&E goods saw a contraction of 1.6% YoY in June, a reversal from the 7.6% YoY increase in May despite improvement in the global semiconductor market.
Production of other manufactured goods, such as petroleum, chemical, rubber, and plastic products surged by 7.1% YoY, a sharp rebound from the 0.1% decline recorded in May, signalling a strong recovery in these segments. The textiles, wearing apparel, leather products, and footwear industries also saw a modest growth of 2.9% YoY, albeit slowing from the 4.3% YoY increase in May, reflecting a slight deceleration in demand. Additionally, the production of wood, furniture, paper products, and printing maintained a positive momentum, growing by 5.4% YoY in June, up from 3.9% YoY in May.
In June, the food, beverage, and tobacco subsector experienced a significant increase, rising by 7.2% YoY, up from 4.7% YoY in May. Conversely, the transport equipment and other manufacturers category saw a decline of 4.3% YoY, a sharp drop from the 8.3% YoY growth recorded in May.
The anticipated uptick in electronics exports, bolstered by favourable base effects, is likely to cushion some of the adverse impacts on Malaysia’s trade outlook. We project Malaysia’s exports of goods and services to grow by +5.4% YoY in 2024, underpinned by a recovery in global demand and a robust electronics sector. Concurrently, global GDP growth is expected to reach 3.0% in 2024, providing a supportive external environment. Malaysia’s high trade openness, as reflected in a merchandise trade-to-GDP ratio of 144.7% in 2023, underscores its vulnerability to global economic cycles, making these projections critical to the country’s economic trajectory.
The IMF anticipates a recovery in world trade growth to approximately 3.25% annually in 2024-2025, realigning with global GDP growth. However, the initial uptick in 1Q24 is projected to decelerate as manufacturing activity remains muted. Despite the rise in cross-border trade restrictions, particularly between geopolitically distant blocs, the global trade-to-GDP ratio is expected to maintain stability. Over the next two years, global trade growth is forecasted to gradually accelerate, supported by lower inflation and rising incomes in advanced economies, which are expected to enhance real wages and stimulate demand for goods, including imports.
According to the WTO's forecast (10 April 2024), merchandise trade volume is projected to expand by 2.6% in 2024 and 3.3% in 2025. The outlook for commercial services trade is similarly optimistic, with digitally delivered services showing significant resilience, having grown by 51% in value terms between 2019 and 2023. Nevertheless, the trade forecast is subject to substantial downside risks, including the resurgence of protectionism, escalating geopolitical tensions, ongoing regional conflicts in the Middle East and Europe, and potential disruptions from commodity price shocks and climate-related weather events.
Source: PublicInvest Research - 12 Aug 2024