• Malaysia's IPI grew by 2.4%, falling short of expectations
• Manufacturing sector's sales value up by 5.5%
• Manufacturing sector employment increased by 0.9%
• Manufacturing recovery is anticipated in 2H24

Malaysia's Industrial Production Index (IPI) increased by 2.4% YoY in May 2024 (Apr: 6.1%), marking its fifth consecutive month of growth. The increase was mainly steered by the Manufacturing sector, which grew by 4.6% (Apr: 4.9%), and a 4.2% expansion in Electricity output (Apr: 7.8%). However, the Mining sector output plunged by 6.9%, in stark contrast to the double-digit growth of 10.0% recorded in April 2024. Compared to the previous month, the IPI rebounded to 3.5% from a decline of 7.6%.

The consistent growth in the Manufacturing sector was supported by increased activity in export-oriented industries, which grew by 3.7% (Apr: 2.6%). This marked the highest growth since November 2022 (5.1%), driven by a significant recovery in the Manufacture of computer, electronics, and optical products at 8.4% (Apr: -1.4%), along with a 4.8% rise in the Manufacture of vegetable and animal oils and fats (Apr: 2.7%). This growth momentum is also evident in the country's manufactured goods export performance, which expanded by 13.5% in May (Apr: 11.9%). On a MoM basis, export-oriented industries saw a turnaround of 9.0% from a decline of 11.6% in April 2024.

Meanwhile, output growth in domestic-oriented industries remained robust at 6.4% (Apr: 9.5%). Significant contributions came from the Manufacture of motor vehicles, trailers & semi-trailers, which saw a substantial rise of 10.3%, followed by the Manufacture of other non-metallic mineral products (9.8%), and the Manufacture of fabricated metal products, except machinery & equipment (6.5%). Compared to the previous month, domestic-oriented industries expanded by 2.3% (Apr: -1.3%).

The 6.9% decline in the Mining sector in May 2024 was driven by a double-digit decrease in Natural Gas production, down by 10.3% (Apr: 14.9%), and a 1.9% drop in Crude Oil & Condensate output (Apr: 3.5%). Similarly on MoM basis, the Mining index fell by 8.9%, following a 6.3% decline in the previous month.

Meanwhile, Electricity generation grew by 4.2% in May 2024 (Apr: 7.8%). On a MoM basis, the Electricity index rebounded to 5.6% (Apr: -4.0%).

The Manufacturing sector's sales value rose by 5.5% to RM154.9bn (Apr: 5.7%). This growth was primarily driven by strong performances in the electronics and electrical (E&E) Products (12.2%), Non-metallic Mineral Products, Basic Metal & Fabricated Metal Products (8.9%), and Food, Beverages & Tobacco sub-sectors (7.7%). On MoM, there was a 1.1% expansion in sales value, a notable improvement from the 3.3% decline recorded in that month.

Export-oriented industries contributed more than two-thirds of the sales value, showing an improvement of 4.6% (Apr: 3.4%). This growth was driven by a 14.3% growth in the Manufacture of Computer, Electronics & Optical Products, along with a 9.0% expansion in the Manufacture of Vegetable & Animal Oils & Fats. On MoM basis, these industries returned to positive growth with a 2.5% increase, reversing the -3.9% decline seen in April 2024.

In the meantime, the sales value of domestic-oriented industries climbed by 7.9% (Apr: 11.4%). This growth was spurred by expansions in the Manufacture of Motor Vehicles, Trailers & Semi-Trailers (12.9%), Manufacture of Fabricated Metal Products, Except Machinery & Equipment (9.7%), and Manufacture of Food Processing Products (6.3%). However, compared to the previous month, there was a 2.2% decline in the sales value of domestic-oriented industries, slightly worse than the 1.9% decline observed in April 2024.

Steady employment growth in manufacturing. The Manufacturing sector employed 2.38mn workers in April, marking a 0.9% increase from the 2.36mn employed a year earlier (April 2024: 1.0%). Growth was primarily seen in the Food, Beverages & Tobacco (4.6%), Nonmetallic Mineral Products, Basic Metal & Fabricated Metal Products (1.9%), and Wood, Furniture, Paper Products & Printing (0.8%) sub-sectors. Compared to the previous month, sector employment edged up by 0.2%.

Outlook

Looking ahead, we expect sustained growth in the domestic sector despite external challenges. In May 2024, IPI rose in the United States, Singapore, Japan, Vietnam, and Taiwan. However, it showed a deceleration in China and South Korea, while Thailand experienced a decline. Malaysia's IPI stayed positive in May 2024, driven by expansion in both the manufacturing and electricity sectors. This robust performance is expected to continue into 2H24. Consequently, our 2024 IPI forecast maintained at 5.3%.

Manufacturing sales up by 5.5% to RM154.9bn (Apr: 5.7%). The latest manufacturing PMI data (June: 49.9, May: 50.2) mirrors this trend, indicating stable business conditions near the 50.0 neutral mark, signalling a promising start to a broader manufacturing recovery in the 2H24. China's strong factory activity in June (Jun: 51.8, May: 51.7) is anticipated to positively impact Malaysia in the upcoming quarters. Additionally, the recent surge in sales of E&E products (May: 12.2%; April: 2.7%), bodes well with our expectations for a recovery in the global semiconductor industry in the latter part of 2024. Nonetheless, we remain cautious that ongoing geopolitical conflicts and trade tensions could adversely affect the optimistic outlook.

Source: BIMB Securities Research - 15 Jul 2024