IPI growth moderated to +10.8% YoY in Sep (Aug: +13.5% YoY), however still above consensus expectations of +10.5% YoY. Growth was dragged by slower production in electricity (+4.1% YoY; Aug: +9.9% YoY) and manufacturing (+10.4% YoY; Aug: +15.2% YoY). Meanwhile, mining production recorded an acceleration (+15.0% YoY; Aug: +8.0% YoY).

DATA HIGHLIGHTS

IPI growth moderated to +10.8% YoY in Sep (Aug: +13.5% YoY), however still slightly above consensus expectations of +10.5% YoY. Growth was dragged by slower production in the electricity (+4.1% YoY; Aug: +9.9% YoY) and manufacturing (+10.4% YoY; Aug: +15.2% YoY) sectors, offsetting the pickup in the mining sector (+15.0% YoY; Aug: +8.0% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI eased (+0.7%; Aug: +1.6%), following a downturn in manufacturing (-0.5%; Aug: +4.3%) and electricity production (-1.1%; Aug: 0.0). Meanwhile, mining production recorded a pickup (+6.3%; Aug: +0.2%).

The manufacturing index slowed pace to +10.4% YoY (Aug: +15.2% YoY), weighed down by softer growth in both the domestic-oriented and export-oriented sectors. The slower growth in the export-oriented sector (+11.0% YoY; Aug: +12.9% YoY) was consistent with the moderation in exports during the month (+30.1% YoY; Aug: +48.1% YoY). Within the sector, softer production was recorded for E&E (+15.5% YoY; Aug: +19.6% YoY), ‘wood products, furniture, paper products, printing’ (+8.7% YoY; Aug: +16.6% YoY), as well as ‘textiles, wearing apparel, leather products & footwear’ (+8.0% YoY; Aug: +12.9% YoY). Meanwhile, production for ‘petroleum, chemical, rubber & plastic products’ accelerated (+6.5% YoY; Aug: +5.4% YoY).

The domestic-oriented sector also recorded slower growth (+9.2% YoY; Aug: +21.1% YoY), dragged by softer production in both ‘non-metallic mineral products, basic & fabricated metal products’ (+6.4% YoY; Aug: +13.6% YoY) as well as ‘food, beverages & tobacco’ (+5.0% YoY; Aug: +11.4% YoY). Similarly, ‘transport equipment & other manufactures’ (+21.6% YoY; Aug: +55.2% YoY) also recorded slower growth, due mainly to lower motor vehicle production (+35.6% YoY; Aug: +107.1% YoY).

Mining production accelerated (+15.0% YoY; Aug: +8.0% YoY), driven by stronger natural gas production (+21.0% YoY; Aug: +8.0% YoY), offsetting the moderation in crude petroleum production (+7.2% YoY; Aug: +8.0% YoY). On a monthly basis, natural gas posted an upturn (+7.7%; Aug: -7.2%), while crude petroleum declined (-1.4%; Aug: +7.1%).

In 3Q22, IPI rose +12.2% YoY (2Q22: +6.9% YoY) on the back of stronger growth in manufacturing (+13.4% YoY; 2Q22: +9.3% YoY), electricity (+9.0% YoY; 2Q22: +6.2% YoY), and mining (+8.6% YoY; 2Q22: -1.1% YoY) production.

HLIB’s VIEW

The global outlook continued to darken in Oct following a further decline in global manufacturing PMI to 49.4 (Sep: 49.8), marking its third month of contraction. The decline was driven mainly by weaker new order intakes, deteriorating international trade flows and ebbing business confidence. Nevertheless, Malaysia’s domestic - oriented manufacturing industries is expected to still remain stable on the back of continued demand, supported by the better labour market conditions.

Source: Hong Leong Investment Bank Research - 9 Nov 2022