• Malaysia's IPI rose 5.3%, extending its growth streak to seven months
• Manufacturing sales value surged 9.1%
• Manufacturing sector employment grew by 1.3%
• Manufacturing sector upswing is expected to persist in 2H24

Malaysia's Industrial Production Index (IPI) grew by 5.3% in July 2024 (Jun: 5.0%), marking seventh consecutive months of positive momentum. Manufacturing output led the growth with a 7.7% increase (Jun: 5.2%), and a 7.0% growth in Electricity output (Jun: 3.5%). Conversely, the Mining sector's production decreased by 5.0%, compared to the growth of 4.9% recorded in June. Compared to the previous month, the IPI dropped by 1.5%, down from the 4.8% growth seen in June.

The Manufacturing sector surged by 7.0%, driven by strong performances from both export-oriented and domestic-oriented industries, which posted growth rates of 7.8% (Jun: 5.4%) and 7.5% (Jun: 4.6%) in July 2024, respectively. The growth in exportoriented industries was driven by a broad-based expansion, particularly with a 21.9% surge (Jun: 11.0%) in the Manufacture of vegetable and animal oils and fats, followed by a 5.0% increase (Jun: 4.9%) in the Manufacture of computer, electronics, and optical products. Additionally, the Manufacture of coke and refined petroleum products maintained strong growth at 11.7% (Jun: 12.5%). The YoY growth in exportoriented industries reflected the 10.6% rise in the country’s export of manufactured goods in July 2024. However, on MoM basis, export-oriented industries declined by 3.3%, following an 11.8% growth in June 2024.

Meanwhile, the growth in domestic-oriented industries was mainly fuelled by strong performances in the Manufacture of other non-metallic mineral products and the Manufacture of basic metals, which saw increases of 12.2% and 10.5%, respectively. Additionally, the Manufacture of motor vehicles, trailers, and semi-trailers rebounded with a 3.9% growth (Jun: -10.7%). On MoM basis, domestic-oriented industries rose by 1.0%, reversing the 5.4% decline in June 2024.

The 5.0% contraction in the Mining sector was driven by a 5.4% decline in Natural Gas production (Jun: 6.0%) and a 4.4% drop in Crude Oil & Condensate output (Jun: 3.4%) during the month. Additionally, the Mining index fell by 2.1% MoM, reversing the 4.0% growth seen in the previous month.

Meanwhile, Electricity generation increased by 7.0% YoY (Jun: 3.5%) in July 2024. On MoM basis, the Electricity index rebounded by 5.4%, recovering from a 6.2% decline in June 2024.

The Manufacturing sector's sales value surged by 9.1% to RM157.1bn in July 2024, marking its highest growth since February 2023 (10.3%). This increase was primarily driven by a strong 16.0% growth in the F&B sub-sector (Jun: 8.6%), followed by the E&E products sub-sector at 8.2%, and the Petroleum, chemical, rubber & plastic sub-sector at 6.2%. On MoM basis, sales value grew by 0.6%, rising from RM156.1bn in June 2024 (0.8%).

Export-oriented industries, accounting for 72.3% of the total sales value, remained strong with a 9.4% growth in July 2024, following 6.0% growth in the previous month. This improvement was driven by increases in the Manufacture of computer, electronics & optical products (9.1%), Manufacture of vegetable & animal oils & fats (23.5%), and Manufacture of coke & refined petroleum products (4.8%). On MoM basis, the sales value of export-oriented industries saw a slight decline of 0.5% (Jun: 3.9%).

In the meantime, the domestic-oriented industries strengthened with an 8.4% growth (Jun: 5.5%), primarily driven by a 7.0% increase in the Manufacture of food processing products. Additionally, the Manufacture of motor vehicles, trailers & semi-trailers industry rebounded with a 6.2% growth, recovering from a 5.2% decline in the previous month. On MoM basis, the sales value of domestic-oriented industries rose by 3.7%, reversing the downward trend seen since April 2024 (Jun: -6.7%).

Steady growth in manufacturing workforce numbers. The Manufacturing sector employed 2.37mn employees in the Manufacturing sector, reflecting a YoY increase of 1.3% (Jun: 1.0%). This growth was mainly driven by the F&B sub-sector (4.0%); Non-metallic mineral products, basic metal & fabricated metal products (2.3%); and Wood, furniture, paper products & printing (1.2%). However, compared to the previous month, the number of employees in the sector saw a slight decline of 0.01% (Jun: -0.3%).

Outlook

Looking ahead, we expect sustained growth in the domestic sector despite external challenges. In July 2024, IPI surged in South Korea, Singapore, Japan, Vietnam, and Thailand, while China and Taiwan saw slower growth, and the United States experienced a slight decline. Malaysia’s IPI remained positive, driven by strong manufacturing performance, and is expected to continue into 2H24. We expect continued expansion in the manufacturing sector despite the August Manufacturing PMI remaining below the neutral rate of 50.0 for the third straight month. Despite a slowdown in the Mining sector, the Kasawari gas platform’s commencement is expected to aid recovery. We maintain our year-end 2024 IPI forecast at 5.3%, with current trends suggesting potential upside.

Manufacturing sales value continued its upswing, rising by 9.1% to RM157.1bn (Jun: 5.9%). Although Malaysia's PMI remained at 49.7 in August, recovery prospects look promising, driven by stable domestic demand, modest net export gains, and a global semiconductor recovery. Additionally, the significant increase in E&E product sales (Jul: 8.2%; Jun: 7.1%) and an 18.7% rise in global semiconductor sales in July reinforce our expectation for a semiconductor industry rebound in 2H24. The outlook is further supported by the anticipated recovery in export-oriented industries, driven by a technology upcycle, investment interest, and government infrastructure projects. Domestic manufacturing is anticipated to remain steady, bolstered by EPF Account 3 withdrawals, rising tourist arrivals, and a stable labor market. Nonetheless, we remain cautious about potential impacts from geopolitical conflicts and trade tensions.

Source: BIMB Securities Research - 11 Sept 2024