• Malaysia's IPI rose to 4.3% YoY 
   
• All sectors demonstrated growth, primarily led by the manufacturing sector
   
• The Manufacturing sector's sales value increased by 3.2% YoY

• Employment in the manufacturing sector surged by 1.3% YoY

• Malaysian manufacturers continued their recovery, fueled by increased domestic spending and anticipated external demand.

Malaysia's Industrial Production Index (IPI) rebounded to 4.3% in January. January’s IPI marked the highest growth observed since May 2023. The upswing was led by a notable 3.7% surge in the Manufacturing sector (Dec: -1.4%). Moreover, the Mining sector continued its positive trajectory with a growth rate of 5.0 (Dec: 3.6%), and the Electricity sector experienced a more rapid acceleration at 8.3% (Dec: 4.6%). In comparison with the preceding month, the IPI rebounded to a five-month high of 2.0% (Dec: -1.3%), following two straight months of contraction.

The production in the manufacturing subsector rebounded to an eight-month high of 3.7% YoY. The turnaround in the manufacturing sector in was driven by the vibrant performance of domestic-oriented industries which picked up to 8.0% YoY (Dec’23: 4.2%), while export-oriented industries returned to positive growth of 1.6% YoY after seven consecutive months in negative territory (Dec’23: -4.1%). In a monthon-month comparison, the manufacturing output rebounded (Jan’24: 1.8%; Dec’23: -2.6%) , following a three-month growth contraction with the domestic-oriented industries turned upward to 4.% as opposed to the decline of 1.1% in December 2023 while the export-oriented industries grew marginally by 0.2% (Dec’23: -3.3%).

The Mining sector sustained its upward trend and expanded for the third straight month to 5.0% (Dec’23: 4.1%). The uptick in production of the Mining sector in January 2024 was induced by a 6.6% expansion in Natural Gas production (Dec’23: 5.9%) and 2.6% in the Crude Oil & Condensate output (Dec’23: 1.6%). As compared to December 2023, the Mining index accelerated by 3.1% MoM as against 2.8% registered in the previous month.
 

The generation of Electricity advanced further by 8.3% YoY in January after registering an increase of 4.1% in the preceding month. In comparison to the previous month, the Electricity index increased to 2.0% from 1.4% recorded in December 2023.

The Manufacturing sector's sales value rebounded to 3.2% in January 2024, reaching RM152.7bn after contracting since June 2023 (Dec: -4.2%). The expansion was led by a robust 15.8% growth in the Transport equipment & other manufactures sub-sector (Dec: 6.4%), along with a significant surge of 11.4% in the Food, beverages & tobacco products sub-sector (Dec: -2.6%). Furthermore, the Non-metallic mineral products, basic metal & fabricated metal products sub-sector maintained strong growth, expanding by 9.6% (Dec: 7.4%).

Compared to the preceding month, the sales value increased by 1.9%, reaching RM149.9bn in January 2024 (Dec: -3.3%).

Stable manufacturing employment. In January 2024, the Manufacturing sector employed 2.37mn people, reflecting a 1.3% increase compared to the 2.34mn individuals in January 2023. Growth was mainly observed in the Food, beverages & tobacco (5.5%); Non-metallic mineral products, basic metal & fabricated metal products (1.8%); and Transport equipment & other manufactures (1.1%) sub-sectors. Compared to December 2023, the workforce in this sector saw a marginal decline of 0.1% (Dec: -0.1%). Reflecting the positive employment trend, salaries & wages in the Manufacturing sector increased by 2.0% YoY, totalling RM8.4bn in January 2024. Salaries & wages in January 2024 dropped by 4.5% compared to December 2023, in contrast to the 7.3% growth in the previous month. Moreover, sales value per employee rose by 1.8% to RM64,353, and average salaries & wages per employee increased by 0.7% YoY to RM3,519.
 

Outlook

Looking ahead, while acknowledging potential challenges in external demand affecting monthly production pace in the 1H24, we anticipate sustained growth in the domestically oriented sector, driven by heightened demand from both domestic and external markets, thus contributing to the IPI. Recent data points to growth, and we anticipate increased production in domestic sectors such as food, non-metallic minerals, basic metals, and fabricated metal products in 2024, aligning with heightened consumer confidence. However, export demand may encounter challenges due to slower global growth, diminishing commodity advantages, and ongoing geopolitical tensions. Overall, we uphold our 2024 IPI forecast at 3.5%.

In January 2024, the Manufacturing sector's sales value rebounded by 3.2%, marking the highest growth in January, surpassing levels seen since May 2023. This aligns with the Industrial Production Index (IPI) bouncing back by 4.3% in January (Dec: -0.1%), indicating a recovery in the manufacturing sector following a minor decline. Additionally, Malaysian manufacturers anticipate rising demand. Despite the modest expansion in PMI, there is an expectation of a gradual production recovery in 2024. Malaysia's PMI rose to 49.5 in February (Jan: 49.0), signalling initial indications of improved demand in the Malaysian manufacturing sector with the possibility of a broader manufacturing recovery may become more evident by mid-2024. Malaysia’s E&E subsector sales rebounded by 2.9% in January (Dec: -4.6%), corresponding with our projection for sustained demand in 2024. Nevertheless, caution persists as global trade remains susceptible to significant factors, including prolonged geopolitical tensions, disruptions in global supply chains, and uncertainties in commodity prices. Despite this, recovery is still anticipated in 2024.

Source: BIMB Securities Research - 13 Mar 2024