Bimb Research Highlights

Economic - Modest Growth in Malaysia's Manufacturing Sector

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Publish date: Mon, 13 May 2024, 05:55 PM
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Bimb Research Highlights
  • Malaysia's IPI Edged Up by 2.4%
     
  • Manufacturing Sectors Sales Value Up by 1.4%
     
  • Manufacturing sector employment rose marginally by 0.5%
  • Slight growth signals hope for manufacturing recovery in 2H24

Malaysia's Industrial Production Index (IPI) stayed positive but moderated to 2.4% in March. The growth was led by a 1.3% expansion in the Manufacturing sector (Feb: 1.2%). During the same period, the Mining sector saw a 4.9% increase (Feb: 8.1%), while the Electricity sector recorded a 7.8% rise (Feb: 10.9%). Compared to the previous month, the IPI rebounded to 7.5%, reversing the negative 6.3% from the month before.

The Manufacturing sector's output rose by 1.3% YoY, up from 1.2% in February. The subsectors driving the increase in March 2024 were Non-metallic Mineral Products, Basic Metal & Fabricated Metal Products (7.5%); Electrical & Electronics Products (1.4%); and Wood Products, Furniture, Paper Products, Printing (5.0%). The Manufacturing sector's growth was fuelled by export-oriented industries, which rebounded to 0.5% (Feb: -0.2%). The upturn was driven by increases of 2.0% in the Manufacture of computer, electronics & optical products, and 1.9% in the Manufacture of coke & refined petroleum products. Moreover, the growth in exportoriented industries mirrors the recovery of the country's manufactured goods exports, which gained momentum in March 2024. In a MoM comparison, the exportoriented industries increased by 11.0% compared to -5.8% in February 2024.

On the other hand, domestic-oriented industries saw a modest growth of 3.1%. This increase was mainly driven by the Manufacture of fabricated metal products, except machinery & equipment (11.1%); followed by Manufacture of other non-metallic mineral products (7.6%); and Manufacture of food processing products (4.2%). Compared to the previous month, domestic-oriented industries rebounded to 1.9% from a decline of 7.2% in the previous month.

Output growth in the Mining sector decelerated to 4.9% in March 2024 (Feb: 8.1%), primarily due to a modest increase in Natural Gas production at 8.9% (Feb: 11.9%). Additionally, Crude Oil & Condensate output decreased by 0.7% in March 2024 (Feb: 2.5%). Compared to February 2024, the Mining index increased by 5.3% following a -6.9% decline in the previous month.

Electricity output grew by 7.8% in March 2024 (Feb: 10.9%). Compared to the previous month, the Electricity index surged by 10.4%, a significant improvement from the -4.5% recorded in February 2024.

Summing up the IPI performance for Q1 2024, it surged by 3.3% YoY, compared to 0.8% in Q4 2023. The growth was driven by increased acceleration in the Mining sector, up by 5.9% (Q4 2023: 3.7%), and the Electricity sector, up by 8.9% (Q4 2023: 4.6%). During the same period, the Manufacturing sector reversed its trend, increasing to 2.1% from the previous quarter's -0.2%. However, in a QoQ comparison, the overall IPI declined by 1.0%, driven by a -1.8% decrease in the Manufacturing sector.

The Manufacturing sector's sales value surged by 1.4%, continuing positive YoY trend for the third consecutive month, reaching RM158.4bn in March (Feb: 0.7%). The increase was mainly led by the Non-metallic mineral products, basic metal & fabricated metal products (9.6%); Wood, furniture, paper products & printing (3.4%); and Electrical & electronics products (2.3%) sub-sectors. Compared to the preceding month, the sales value increased by 8.3% from the previous month's decline of 4.3% in February 2024.

The sales value of export-oriented industries, constituting 70.4% of total sales, experienced a slight decline of 0.2% in March 2024 (Feb: 1.7%). The decline was caused by decreases in the Manufacture of coke & refined petroleum products (-6.7%); Manufacture of vegetable & animal oils & fats (-5.5%); and Manufacture of chemicals & chemical products (-3.0%) subsectors. As compared to the preceding month, the sales value of export-oriented industries surged by 9.9%, a significant improvement from the negative 3.9% in February 2024. In the meantime, the sales value of domestic-oriented industries continued to be strong, increasing by 5.4% in March 2024 (Feb: 6.5%). The growth was fuelled by the double-digit expansion of the Manufacture of fabricated metal products, excluding machinery & equipment, which surged to 16.6%. Furthermore, the Manufacture of food processing products and Manufacture of other non-metallic mineral products contributed to the growth by recording increases of 7.7% and 6.5%, respectively. As compared to the previous month, the sales value of domestic-oriented industries increased by 4.7%, marking a contrast with the 5.0% decrease in February.

Consistent employment in manufacturing. The Manufacturing sector employed 2.36mn workers in March, marking a 0.5% increase compared to the 2.35mn persons employed in March 2023. The rise was mainly seen in the Food, beverages & tobacco (4.4%); Non-metallic mineral products, basic metal & fabricated metal products (1.7%); and Wood, furniture, paper products & printing (0.6%) sub-sectors. On monthly basis, the sector experienced a slight decline in the number of employees, dropping by 0.1%. (Feb: -0.3%)

The Manufacturing sector's sales value rebounded to 1.8% in Q1 2024, reaching RM457.3bn (Q4 2023: -2.7%). The growth was driven by the Non-metallic mineral products, basic metal & fabricated metal products (8.3%); Transport equipment & other manufactures (8.2%); and Electrical & electronics products (2.1%) sub-sectors. During this period, the employee count rose by 0.5% to reach 2.36mn individuals, while salaries & wages grew by 1.2% to RM24.8bn. Additionally, the sales value per employee increased by 1.2%, reaching RM193,493.

Outlook

Looking ahead, we anticipate domestic sector growth despite external challenges in 1H24. Recent data shows slight manufacturing growth in key export countries but decreased in Singapore, the US, Japan, and Thailand in March. Malaysia's industrial output exceeded expectations in March and is expected to continue strong momentum in 2H24. However, export demand may face hurdles due to slower global growth and geopolitical tensions. Our 2024 IPI forecast remains at 3.5%.

Manufacturing sales grew by 1.4% YoY for the third straight month to RM158.4bn in March (Feb: 0.7%). This mirrors the modest growth in the latest PMI (Apr: 49.0; Mar: 48.4), a gradual production recovery is expected in 2024. China's strong factory activity in April is anticipated to have a positive impact on Malaysia in the coming quarters. The recent slight increase in sales of electronics and electrical (E&E) products (Mar: 2.3%; Feb: 1.3%) aligns with our positive outlook for recovery in the electronics and semiconductor sectors in the second half of 2024. Despite cautiousness regarding geopolitical tensions, supply chain disruptions, and commodity price uncertainties affecting global trade, a recovery is anticipated in 2024.

In conclusion, while challenges persist, Malaysia's IPI especially manufacturing sector remains resilient and adaptable. By leveraging technological innovations, diversifying markets, and embracing sustainability, Malaysia can navigate the evolving global manufacturing landscape and emerge stronger in the post-pandemic era.

Source: BIMB Securities Research - 13 May 2024

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