● Industrial Production Index (IPI) moderated to a 4-month low in September (10.8% YoY; Aug: 13.5%), but registered above house and market expectations (KIBB: 9.8%; consensus: 10.5%)

- The moderation was primarily attributable to a growth slowdown in the manufacturing index and to a lesser extent in the electricity index, which outweighed stronger growth in the mining index.

- MoM (1.3%; Aug: 3.9%): eased to a 2-month low following the previous month’s rebound.

● Manufacturing index growth moderated to 10.4% (Aug: 15.2%), in line with a slowdown in manufacturing sales (19.5%; Aug: 24.4%) and exports growth (30.1%; Aug: 48.2%)

- The moderation was driven by slower growth of electrical & electronic products (15.5%; Aug: 19.6%), down to a 5-month low, and transport equipment & other manufactures (21.6%; Aug: 55.2%), which outpaced a greater expansion in petroleum, chemical, rubber & plastic products (6.5%; Aug: 5.4%).

- MoM (1.1%; Aug: 5.6%): eased following the previous month’s substantial rebound, mainly due to slower growth in export-oriented industries.

● Mining index growth jumped to a 16-month high (15.0%; Aug: 8.0%)

- Driven by greater extraction of crude oil & natural gas (15.0%; Aug: 8.0%) and an expansion in natural gas production (21.0%; Aug: 8.0%), both of which reached 16-month highs, and outweighed a slowdown in crude petroleum output (7.2%; Aug: 8.0%).

- MoM (3.8%; Aug: -1.6%): rebounded despite lower global oil prices (USD89.7/barrel; Aug: USD100.4/barrel).

● Electricity index growth continued to moderate (4.1%; Aug: 9.9%), reaching a 4-month low

- MoM (-3.7%; Aug: -0.1%): recorded a deeper contraction, its lowest since March.

● 2022 manufacturing index forecast maintained at 9.5% (2021: 9.5%)

- Manufacturing growth appears to be supported by resilient domestic demand, but has already begun to be impacted by weaker external trade amid an approaching global economic slowdown. Likewise, we still expect manufacturing index growth to taper down over 4Q22 as domestic demand may begin to lose momentum, especially following four successive interest rate hikes by Bank Negara Malaysia.

- We expect the upcoming 3Q22 GDP release to indicate stronger growth at 10.9%, but still project 4Q22 growth to slow considerably to 2.3% on weaker private consumption and amid heightened external risks. Overall, we maintain our 2022 GDP growth forecast range at 6.5% - 7.0% (2021: 3.1%) and expect 2023 growth to moderate between 4.0% - 4.5%.

Source: Kenanga Research - 9 Nov 2022