IPI growth accelerated to +13.6% YoY in Aug (Jul: +12.5% YoY), surpassing consensus expectations of +10.2% YoY. The pickup was mainly driven by stronger production in both the manufacturing (+15.2% YoY; Jul: +14.9% YoY) and mining (+8.0% YoY; Jul: +3.2% YoY) sectors. Meanwhile, electricity production recorded slower growth (+10.0% YoY; Jul: +13.2% YoY).

DATA HIGHLIGHTS

IPI growth accelerated further to +13.6% YoY in Aug (Jul: +12.5% YoY), surpassing consensus expectations of +10.2% YoY. Growth was mainly driven by stronger production in both the manufacturing (+15.2% YoY; Jul: +14.9% YoY) and mining (+8.0% YoY; Jul: +3.2% YoY) sectors. Meanwhile, electricity production recorded softer growth (+10.0% YoY; Jul: +13.2% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI posted a rebound (+1.7%; Jul: -3.9%), following an upturn in production across the board during the month; manufacturing (+4.3%; Jul: -6.4%), mining (+0.2%; Jul: -2.7%), and electricity production (+0.2%; Jul: -4.2%).

The manufacturing index picked up to +15.2% YoY (Jul: +14.9% YoY) on the back of stronger growth in the export-oriented sector, while the domestic-oriented sector recorded softer growth. The stronger growth in the export-oriented sector (+12.9% YoY; Jul: +10.5% YoY) was also consistent with the positive exports momentum during the month (+48.2% YoY; Jul: +38.0% YoY). Within the sector, production strengthened for both E&E (+19.2% YoY; Jul: +17.3% YoY) and ‘petroleum, chemical, rubber & plastic products’ (+5.9% YoY; Jul: +1.0% YoY). Meanwhile, production for ‘wood products, furniture, paper products, printing’ (+16.6% YoY; Jul: +27.8% YoY) and ‘textiles, wearing apparel, leather products & footwear’ (+12.9% YoY; Jul: +17.9% YoY) moderated.

Meanwhile, production in the domestic-oriented sector moderated (+21.0% YoY; Jul: +27.4% YoY), albeit still robust. Growth was mainly dragged by softer production in ‘non-metallic mineral products, basic & fabricated metal products’ (+13.6% YoY; Jul: +23.9% YoY). Production for ‘transport equipment & other manufactures’ also moderated (+53.6% YoY; Jul: +73.6% YoY), owing to the continued deceleration in motor vehicles production (+107.1%; Jul: +129.9% YoY). These offset the slight pickup in ‘food, beverages & tobacco’ (+11.9% YoY; Jul: +11.2% YoY).

Mining production gained momentum (+8.0% YoY; Jul: +3.2% YoY), driven by a rebound in crude petroleum production (+8.0% YoY; Jul: -8.6% YoY), and continued growth in natural gas production (+8.0%; Jul: +12.6% YoY), albeit at a slower pace. On a monthly basis, crude petroleum posted an upturn (+7.1%; Jul: -7.6%) while natural gas declined (-7.2%; Jul: +0.3%).

HLIB’s VIEW

The global outlook darkened in Sep as global manufacturing PMI dropped into contraction territory at 49.8 (Aug: 50.0) for the first time since Jun 2020. New orders and new export business declined at faster pace, pointing to a deterioration in production trend in upcoming months amid weaker global trade flows. Nevertheless, production in Malaysia’s domestic-oriented manufacturing industries is expected to remain relatively stable, backed by on-going recovery in the labour market. We maintain our 2022 GDP forecast at +6.5% YoY.

Source: Hong Leong Investment Bank Research - 13 Oct 2022