● Industrial Production Index (IPI) growth moderated in December (3.0% YoY; Nov: 4.8%), coming in below house and market estimates (KIBB & Consensus: 4.2%)

- The moderation was attributable to a broad-based slowdown in all indices, with the electricity index returning to a contractionary level.

- MoM (-0.6%; Nov: 1.0%): fell back into contraction following November’s recovery.

- 2022: growth eased to 6.9% (2021: 7.2%), normalising following 2021’s strong post-pandemic recovery and primarily driven by the manufacturing segment.

● Manufacturing index growth eased to 3.0% YoY (Nov: 4.8%), partly in line with a sharp moderation in exports growth (6.0%; Nov: 15.1%) and manufacturing sales growth (8.6%; Nov: 11.8%)

- The slowdown was primarily driven by a moderation in electrical & electronic products (7.2%; Nov: 12.1%), as well as slower growth in food, beverages & tobacco (3.4%; Nov: 4.8%) and a contraction in petroleum, chemical, rubber & plastic products (-0.9%; Nov: 0.4%).

- MoM (-1.2%; Nov: 0.7%): unexpectedly returned to a contraction, amid a moderation in domestic-oriented industries (0.4% MoM: Nov: 4.6% and a deeper contraction in export-oriented industries (-1.9% MoM; Nov: -1.0%).

● Mining index growth moderated to a 5-month low (4.1% YoY; Nov: 6.1%)

- The moderation was attributable to a further slowdown in extraction of crude oil & natural gas (4.1%; Nov: 6.1%) and natural gas production (3.3%; Nov: 8.2%), which outweighed an expansion in crude petroleum output (5.1%; Nov: 3.1%).

- MoM (1.1%; Nov: 3.5%): moderated in line with lower global oil prices (USD81.0/barrel; Nov: USD91.4/barrel).

● Electricity index contracted in December (-1.1% YoY; Nov: 0.7%), partly due to a high-base effect

- MoM (0.9%; Nov: -3.4%): returned to a slight expansion following November’s surprise downturn.

● 2023 manufacturing index growth expected to moderate further to 6.6% YoY (2022: 8.2%; 2021: 9.5%)

- Manufacturing growth will likely be weighed by weak external demand, as the global economy braces for a slowdown, and waning domestic demand especially after the festive period. This is evidenced by Malaysia’s PMI, which fell for a fifth straight month in January (46.5; Nov: 47.8) and remained well under the contractionary level. That said, there is moderate upside risk from China’s earlier-than-expected reopening and its quick recovery from a severe COVID-19 outbreak, as well as strong labour data from the US suggesting that it may avoid a recession.

- For Malaysia’s GDP, we still expect a sharp deceleration in 4Q22 growth (KIBB: 6.6%; 3Q22: 14.2%), which would bring 2022 growth to our forecast of 8.6% (2021: 3.1%). Furthermore, we continue to project 2023 growth to ease to 4.3%, in line with a tepid global economic outlook.

Source: Kenanga Research - 8 Feb 2023