IPI growth slowed to +3.0% YoY in Dec (Nov: +4.8% YoY), missing consensus expectations of +4.2% YoY. Growth was weighed down by softer manufacturing (+3.0% YoY; Nov: +4.8% YoY) and mining production (+4.1% YoY; Nov: +6.1% YoY), coupled with a contraction in electricity production (-1.1% YoY; Nov: +0.7% YoY).

DATA HIGHLIGHTS  

IPI growth slowed to +3.0% YoY in Dec (Nov: +4.8% YoY), missing consensus expectations of +4.2% YoY. Growth was weighed down by softer manufacturing (+3.0% YoY; Nov: +4.8% YoY) and mining production (+4.1% YoY; Nov: +6.1% YoY), coupled with a contraction in electricity production (-1.1% YoY; Nov: +0.7% YoY) (refer to Figure #1).  

On a monthly seasonally adjusted basis, IPI posted a decline (-2.3%; Nov: +2.6%), following a downturn in manufacturing (-2.2%; Nov: +3.4%) and electricity production (-0.4%; Nov: +0.4%), as well as a continued decline in mining (-1.3%: Nov: -2.1%) production.  

The manufacturing index trended lower at +3.0% YoY (Nov: +4.8% YoY), dragged by slower production in the export-oriented sector, despite the pickup in the domestic oriented sector. Export-oriented production (+2.5% YoY; Nov: +5.3% YoY) moderated in tandem with Dec’s exports performance (+6.0% YoY; Nov: +15.1% YoY). Within the sector, contractions were seen across ‘wood products, furniture, paper products, printing’ (-4.3% YoY; Nov: -3.6% YoY), ‘petroleum, chemical, rubber & plastic products’ (-0.9% YoY; Nov: +0.4% YoY) as well as ‘textiles, wearing apparel, leather products & footwear’ (-0.5% YoY; Nov: +0.8% YoY). Softer production was also recorded for E&E products (+7.2% YoY; Nov: +12.1% YoY).  

Meanwhile, growth in the domestic-oriented sector picked up pace (+4.2% YoY; Nov: +3.8% YoY), underpinned by stronger growth in ‘transport equipment & other manufactures’ (+8.5% YoY; Nov: +6.5% YoY), due mainly to higher motor vehicle production (+11.8% YoY; Nov: +9.4% YoY), as well as in ‘non-metallic mineral products, basic & fabricated metal products’ (+2.2% YoY; Nov: +1.1% YoY). These offset the moderation recorded in ‘food, beverages & tobacco’ (+3.4 YoY; Nov: +4.8% YoY).  

Mining production moderated further (+4.1% YoY; Nov: +6.1% YoY), weighed down by slower natural gas production (+3.3% YoY; Nov: +8.2% YoY), which offset the stronger crude petroleum production (+5.1% YoY; Nov: +3.1% YoY). On a monthly basis, crude petroleum accelerated (+4.5%; Nov: +1.9%), while natural gas declined (-1.2%; Nov: +4.6%).  

In 4Q22, IPI slowed to +4.1% YoY (3Q22: +12.2% YoY) following softer mining (+6.2% YoY; 3Q22: +8.6% YoY) and manufacturing (+4.0% YoY; 3Q22: +13.4% YoY) production, as well as decline in electricity production (-0.5% YoY; 3Q22: +9.0% YoY).

HLIB’s VIEW

The global manufacturing downturn showed signs of easing in Jan (manufacturing PMI: 49.1; Dec: 48.7) as rates of decline in output and new orders slowed. However at 49.1, the PMI remained in contraction territory. In line with the still-bleak global outlook, Malaysia’s industrial production is also expected to remain subdued going forward. Nevertheless, China’s reopening is likely to provide some support to demand. We maintain our 2023 GDP forecast at +4.0% YoY (2022e: +8.2% YoY).

Source: Hong Leong Investment Bank Research - 8 Feb 2023