Malaysia's Industrial Production Index (IPI) expanded by 4.1% YoY in August, moderating from 5.3% in July, marking the eighth consecutive month of growth, but falling short of market expectations of 5.4%. This performance was driven by a 6.5% YoY increase in the manufacturing sector and a 4.1% YoY rise in electricity output, while the mining sector contracted by 6.4% YoY. As we progress further into 2H24, the industrial sector is expected to maintain its growth trajectory, bolstered by strong domestic demand and a gradual recovery in global markets. However, downside risks persist, with external demand pressures potentially dampening industrial output amid ongoing global uncertainties.
Manufacturing production growth in August remained robust, supported by balanced contributions from both domestic- and export-oriented industries. Domestic-oriented industries recorded a 7.1% YoY expansion in August, moderating from 7.5% in July. Meanwhile, export-oriented industries grew by 6.3% YoY, down from 7.8% in the previous month. Within the export-oriented segment, the electrical & electronics (E&E) sector saw a notable acceleration, with production rising 7.2% YoY in August, up from 5.0% in July. This was primarily driven by higher output in computers, electronics, and optical products, as well as electrical equipment and machinery. Exports of E&E products surged by 16.1% YoY in August, significantly improving from 2.6% in July, underpinned by a recovery in the global semiconductor market.
Production in other manufacturing sectors grew at a slower pace in August, with petroleum, chemical, rubber, and plastic products recording 3.0% YoY growth, down from 9.3% in July. The textiles, wearing apparel, leather products, and footwear segment expanded by 5.6% YoY in August, compared to 7.6% in the prior month. Meanwhile, the wood, furniture, paper products, and printing sector posted a 6.7% YoY increase in August, following an 8.6% rise in July.
The food, beverage, and tobacco subsector continued its upward momentum, registering an 11.0% YoY increase in August, up from 10.7% in July, reflecting resilient domestic consumption and steady demand. The transport equipment and other manufacturers category also recorded further gains, with growth accelerating to 6.4% YoY in August, compared to 4.9% YoY in the previous month.
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. 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.
In its October update, the WTO reported a rebound in global merchandise trade, with a 2.3% YoY increase in 1H24. This upturn follows a contraction in 2023, driven by elevated inflation and rising interest rates. Trade volume is projected to expand by 2.7% YoY in 2024 and 3.0% YoY in 2025, aligning with a global GDP growth forecast of 2.7% for both years at market exchange rates. The easing of inflationary pressures has prompted central banks in advanced economies to initiate rate cuts, which is expected to bolster consumption, spur investment, and underpin a gradual recovery in global trade.
Nonetheless, downside risks persist. Geopolitical tensions, particularly regional conflicts, pose a threat to trade flows, while divergent monetary policies could heighten financial market volatility. The fragmentation of supply chains due to geopolitical dynamics remains a concern. On the upside, a more pronounced impact of interest rate cuts on growth, without rekindling inflation, could provide additional tailwinds for global trade.
Source: PublicInvest Research - 14 Oct 2024
Created by PublicInvest | Nov 08, 2024
Created by PublicInvest | Nov 06, 2024