IPI growth slowed to +1.8% YoY in Jan (Dec: +2.8% YoY), missing consensus expectations of +2.3% YoY. Growth was weighed down by a steeper decline in electricity production (-4.3% YoY; Dec: -2.2% YoY) as well as slower manufacturing production (+1.3% YoY; Dec: +3.0% YoY), offsetting the pickup in mining production (+5.9% YoY; Dec: +3.9% YoY).

DATA HIGHLIGHTS

IPI growth slowed to +1.8% YoY in Jan (Dec: +2.8% YoY), missing consensus expectations of +2.3% YoY. Growth was weighed down by a steeper decline in electricity production (-4.3% YoY; Dec: -2.2% YoY) as well as slower manufacturing production (+1.3% YoY; Dec: +3.0% YoY), offsetting the pickup in mining production (+5.9% YoY; Dec: +3.9% YoY) (refer to Figure #1).  

On a monthly seasonally adjusted basis, IPI continued to contract (-2.4%; Dec: -2.0%) following declines in production across the board; mining production (-0.4%; Dec: -0.8%), manufacturing production (-2.7%; Dec: -1.9%), as well as electricity production (-4.3%; Dec: -1.0%).  

The manufacturing index trended lower at +1.3% YoY (Dec: +3.0% YoY) following softer growth in both the export-oriented and domestic-oriented sectors. The moderation in export-oriented sector growth (+0.4% YoY; Dec: +2.5% YoY) was consistent with the slower exports momentum during the month (+1.6% YoY; Dec: +5.9% YoY). Within the sector, steeper contractions were recorded for ‘textiles, wearing apparel, leather products & footwear’ (-1.8% YoY; Dec: -0.5% YoY), as well as for ‘wood products, furniture, paper products, printing’ (-6.1% YoY; Dec: -4.3% YoY). Softer production was also seen for E&E products (+0.4% YoY; Dec: +7.2% YoY), in line with the softer trend in the global semiconductor industry. These offset the stronger production for ‘petroleum, chemical, rubber & plastic products’ (+2.0% YoY; Dec: -0.9% YoY).  

Similarly, growth in the domestic-oriented sector also moderated (+3.3% YoY; Dec: +4.2% YoY). This was large part due to the downturn in production for ‘non-metallic mineral products, basic & fabricated metal products’ (-0.6% YoY; Dec: +2.2% YoY). The softer production for ‘transport equipment & other manufactures’ (+8.0% YoY; Dec: +8.5% YoY) also contributed to the slower domestic-oriented sector growth.  

Meanwhile, production of ‘food, beverages & tobacco’ picked up (+4.4% YoY; Dec: +3.4% YoY), potentially reflecting continued growth in tourism industries. Meanwhile, mining production gained momentum (+5.9% YoY; Dec: +3.9% YoY) following accelerations in both crude petroleum (+8.0% YoY; Dec: +4.2% YoY) and natural gas (+4.5% YoY; Dec: +3.7% YoY) production. On a monthly basis, natural gas posted a rebound (+3.9%; Dec: -1.2%) while crude petroleum declined (-1.4%; Dec: +4.5%).

HLIB’s VIEW

On the global front, global manufacturing PMI registered a reading identical to a no change mark in Feb (50.0; Jan: 49.1), halting a five-month run of contractions. The upturn in output volume was driven by Asia, benefitting from China’s economic reopening and easing supply constraints. Nevertheless, despite the improvement in global sentiment, Malaysia’s industrial production is still expected to remain modest amid a more moderate external demand environment compared to previous year.

Source: Hong Leong Investment Bank Research - 14 Mar 2023