● Industrial Production Index (IPI) jumped to a 13-month high in June (12.1%; May: 4.1%), exceeding both house and market expectations (KIBB: 7.5%; consensus: 4.9%)

- The expansion was attributable to broad-based growth among all three indices, led by stronger-than-expected growth in the manufacturing index.

- MoM (9.6%; May: -1.0%): returned to growth for the first time in three months, its highest level since June 2020.

- 2Q22 (6.9%; 1Q22: 4.5%): growth accelerated on stronger domestic and external demand following the easing of most COVID-19 restrictions at home and abroad.

● Manufacturing index growth accelerated significantly in June (14.5%; May: 6.9%), in line with a strong expansion in exports growth (38.8%; May: 30.5%) and manufacturing sales growth (23.4%; May: 15.7%)

- The expansion was driven by a surge in growth of transport equipment & other manufactures (89.9%; Jun: 12.4%), on a low-base effect, as well as further growth of non-metallic mineral, basic metal & fabricated metal products (25.1%; May: 5.2%) and electrical & electronic products (16.9%; May: 15.5%).

- MoM (12.9%; May: -1.3%): growth rebounded, particularly due to a strong MoM expansion of electrical & electronic products (21.5%; May: 1.1%).

● Mining index returned to growth in June (2.1%; May: -4.9%), reaching its highest level in 7-months

- Driven by a return to growth for the extraction of crude oil & natural gas (2.1%; May: -4.9%) and natural gas production (5.5%; May: -3.6%), as well as a softer decline in crude petroleum output (-2.4%; May: -6.7%).

- MoM (1.6%; May: -0.6%): returned to growth amid higher global oil prices (USD122.7b; May: USD113.1/barrel).

● Electricity index rose to a 14-month high of 14.1% (May: 2.8%), but mainly due to a very low base from June 2021

- MoM (-2.7%; May: 1.5%): fell back into contraction in June, its lowest level in 4-months.

● 2022 manufacturing index forecast raised to 8.0% from 5.5% previously (2021: 9.5%)

- Higher manufacturing index growth is expected after June’s stronger-than-expected expansion, which more than outweighed the contraction over April and May. Likewise, manufacturing growth will likely remain supported by strong domestic demand and recovering external demand, with Malaysia’s PMI improving in July (50.6; Jun: 50.4). However, downside risks to global growth remain, with the UK and EU still at risk of recession, whilst US recession expectations have subsided of late.

- We maintain our 2022 GDP growth forecast between 5.0 – 5.5% (2021: 3.1%) on continued optimism over strong domestic demand, but we remain cautious of external risks to growth amid supply chain disruptions and global recession concerns.

Source: Kenanga Research - 10 Aug 2022