● Industrial Production Index (IPI) growth rose to a threemonth high in February (3.6% YoY; Jan: 1.8%), beating house and market estimates (KIBB: 2.8%; Consensus: 2.5%)

- The YoY expansion was mainly due to a low base effect from last year, but was driven by greater growth in the manufacturing index and a return to growth for the electricity index.

- MoM (-5.1% Jan: -2.3%): the sharpest monthly contraction since February 2022 (-6.7%).

● Manufacturing index growth rose to 4.9% YoY (Jan: 1.3%), primarily due to the low base, and in line with an expansion in exports growth (9.8%; Jan: 1.4%)

- The expansion was broad-based, led by greater growth among electrical & electronic products (5.5%; Jan: 0.4%), and food, beverages & tobacco (11.3%; Jan: 4.4%), a six-month high, as well as a rebound in non-metallic mineral, basic metal & fabricated metal products (6.5%; Jan: -0.6%), which also reached a six-month high.

- MoM (-3.9%; Jan: -3.3%): a seven-month low, as domestic-oriented industries fell into contraction (-3.8%; Jan: 1.2%) and despite a slightly softer downturn among export-oriented industries (-4.0%; Jan: -5.4%).

● Mining index recorded its first contraction in nine months (-0.5% YoY; Jan: 5.9%)

- The contraction was due to a broad-based slowdown in all subsectors: extraction of crude oil & natural gas (-0.5%; Jan: 5.9%), crude petroleum output (-0.3%; Jan: 8.0%) and natural gas production (-0.5%; Jan: 4.5%).

- MoM (-9.6%; Jan: 1.7%): plunged to its lowest level since April 2020.

● Electricity index rebounded in February (1.1 YoY; Jan: -4.3%), solely due to a low base effect

- MoM (-5.5%; Jan: -3.4%): fell to its lowest level in a year.

● 2023 manufacturing index growth forecast maintained at 5.0% (2022: 8.2%)

- Manufacturing output is expected to improve in March on stronger external demand, following the end of major festive periods, and to remain supported by solid domestic demand. Malaysia’s PMI continued to improve slightly in March (48.8; Feb: 48.4), with new export orders declining at its softest pace since July 2022, indicating some recovery in external demand. That said, downside risks remain given the uncertain global economic outlook and the potential for exports to weaken once again.

- We expect GDP growth to moderate in 2Q23 (KIBB: 3.5%; 1Q22: 5.1%), amid normalising fiscal policy with reduced support from COVID-era stimulus measures, as well as a decelerating global economy chiefly due to aggressive monetary policy tightening by most major central banks. That said, growth should remain underpinned by robust domestic demand and a projected increase in tourist arrivals; our 2023 GDP forecast stands at 4.7% (2022: 8.7%).

Source: Kenanga Research - 12 Apr 2023