• Malaysia's IPI grew 4.1%, marking its eighth consecutive month of growth
   
• Manufacturing sales value increased by 7.7%
   
• Manufacturing sector employment up by 1.0%

• Manufacturing sector growth poised to continue in 2H24

Overview

Malaysia's Industrial Production Index (IPI) rose by 4.1% in August 2024, a slowdown from the 5.3% growth seen in the previous month and below market expectations of 5.4%. This marked the eighth consecutive month of growth, although it was the slowest rate since May, as both manufacturing (6.5% vs 7.7% in July) and electricity (4.1% vs 7.0% in July) experienced a moderation in activity. Conversely, the Mining sector's output continued its YoY decline for the second straight month, dropping by 6.4% in August (Jul: -5.0%). Compared to the previous month, the IPI bounced back with a 1.7% increase, following a 1.5% decline in the previous month.

The rise in Manufacturing output for August 2024 was driven by export-oriented industries, although growth ease to 6.3%, down from 7.8% in July 2024. This increase was largely supported by the steady performance of the Manufacture of vegetable & animal oils & fats, which grew by 22.6% (Jul: 21.9%), and the Manufacturing of rubber products, up 11.1% (Jul: 10.5%). Additionally, the Manufacturing of computers, electronics & optical products contributed to the growth, with an 8.7% increase (Jul: 5.0%). On MoM basis, export-oriented industries saw a 3.0% improvement, recovering from a 3.3% decline in July 2024.

Meanwhile, the domestic-oriented industries continued to grow, posting a 7.1% increase, though slightly slower than the 7.5% recorded in the previous month. This strong performance was mainly driven by solid growth in the Manufacture of fabricated metal products (excluding machinery and equipment) and the Manufacture of motor vehicles, trailers, and semi-trailers, which rose by 10.3% (Jul: 9.1%) and 7.7% (Jul: 3.9%), respectively. On MoM basis, domestic-oriented industries continued to rise, increasing by 6.1%, up from 1.0% in July 2024.

Output growth in the Mining sector declined further to -6.4% in August 2024, dragged by the reductions in Natural Gas and Crude Oil & Condensate production, which recorded YoY declines of -7.0% (Jul: -5.4%) and -5.7% (Jul: -4.4%), respectively. As a result, the Mining index continued to contract MoM, falling by 6.9% (Jul: -2.1%).

In August 2024, Electricity generation continued to grow YoY, increasing by 4.1% (Jul: 7.0%). However, on a MoM basis, the Electricity index fell by 2.0% (Jul: 5.4%).

The Manufacturing sector's sales value grew by 7.7%, reaching RM163.9bn in August 2024, down from a 9.1% increase in the previous month. This growth was mainly driven by strong double-digit increases in the F&B and E&E products sub-sectors, which saw growth rates of 16.1% (Jul: 16.0%) and 10.4% (Jul: 8.2%), respectively. On MoM basis, the sales value increased by 4.4%, following a prior rise of 0.6%, reaching RM157.1bn in July 2024.

Export-oriented industries, which account for 72.7% of the total sales value, grew by 7.8% in August 2024, a slight increase from 9.4% in the previous month. This performance was largely driven by growth in the Manufacture of Computer, Electronics & Optical Products (12.0%), Manufacture of Vegetable & Animal Oils & Fats (23.3%), and Manufacture of Rubber Products (11.6%). On a MoM basis, the sales value of export-oriented industries rebounded to 5.0%, recovering from a minor decline of 0.5% in July 2024.

In the meantime, the domestic-oriented industries grew by 7.6% (Jul: 8.4%), primarily driven by the Manufacture of Motor Vehicles, Trailers & Semi-Trailers, which increased by 10.4%. This was followed by the Manufacture of Food Processing Products at 7.5% and the Manufacture of Fabricated Metal Products (excluding machinery and equipment) at 9.7%. On a monthly basis, the sales value of domestic-oriented industries continued to rise, recording a growth of 2.7% (Jul: 3.7%).

Consistent increase in manufacturing workforce numbers. The Manufacturing sector employed 2.38mn workers, reflecting a 1.0% increase compared to the previous year (Jul: 1.3%). This growth was primarily driven by the F&B sector (3.9%), Wood, Furniture, Paper Products & Printing (1.1%), and Textile, Wearing Apparel, Leather & Footwear (1.5%). Compared to the previous month, employment in this sector improved by 0.4% (Jul: -0.01%).

Outlook

Looking ahead, we expect sustained growth in the domestic sector despite external challenges. In August 2024, Singapore, the United States, and Taiwan reported higher IPI growth, while China, South Korea, and Vietnam experienced slower growth rates. In contrast, Japan and Thailand saw declines. Malaysia's IPI is projected to strengthen in the second half of 2024, supported by ongoing demand in the semiconductor sector. We anticipate continued expansion in the manufacturing sector, even though the September Manufacturing PMI has remained below the neutral mark of 50.0 for the fourth consecutive month. We are maintaining our 2024 IPI target at 5.3%, with current trends indicating potential for upside.

Manufacturing sales value continued to rise, increasing by 7.7% to RM163.9bn (Jul: 9.1%). Despite Malaysia's PMI slipping to 49.5 in September, recovery prospects are promising due to stable domestic demand, modest net export gains, and a global semiconductor recovery, evident in the sales of E&E products (Aug: 10.4%; Jul: 8.2%) and a 20.6% rise in August global semiconductor sales. While positive spillover effects may take time, they are expected to become more apparent soon. We remain cautiously optimistic about the manufacturing sector regaining momentum by year-end, driven by the technology upcycle, stimulus measures in China, and supported by EPF withdrawals, increased tourism, and a stable labor market, despite ongoing geopolitical risks. Overall, we anticipate continued resilience in trade and manufacturing activities, coupled with sustained domestic demand from increased consumer and investment spending.

Source: BIMB Securities Research - 16 Oct 2024