● Industrial Production Index (IPI) growth moderated in March (3.1% YoY; Feb: 3.5%), but came in considerably above house and market expectations (KIBB: 0.3%; Consensus: 0.7%)

− The growth slowdown was primarily due to a high-base effect, as well as a YoY moderation in manufacturing output and a contraction in the electricity index, which outweighed a slight return to growth in mining output.

− MoM (8.3%; Feb: -5.1%): a sharp rebound after two straight months of contraction and its highest level since June 2022 (9.5%).

● Manufacturing index growth slowed to 4.1% YoY (Feb: 4.8%), mainly due to the high base, despite a contraction in exports (-1.4%; Feb: 9.8%)

− The moderation was attributable to a broad-based slowdown in all subsectors barring electrical & electronic products (6.4%; Feb: 5.4%), which continued to support manufacturing output. That said, wood products, furniture, paper products & printing recorded a deeper contraction (-4.8%; Feb: -0.4%) and food, beverages & tobacco production slowed for the first time in three months (7.6%; Feb: 10.4%), prompting the overall slowdown.

− MoM (7.8%; Feb: -4.0%): surged to its highest level in nine months, mainly driven by a strong rebound among export-oriented industries (10.3%; Feb: -4.1%) and a recovery in domestic-oriented industries (2.8%; Feb: -3.8%).

● Mining index returned to growth in March (0.8% YoY; Feb: -0.5%) despite being restrained by the high base

− The expansion was driven by a recovery in extraction of crude oil & natural gas (0.8%; Feb: -0.5%) and crude petroleum output (5.0%; Feb: -0.3%), despite weaker natural gas production (-2.1%; Feb: -0.5%).

− MoM (8.5%; Feb: -9.6%): rebounded to its highest level since October 2021 (9.5%).

● Electricity index dipped back into contraction (-0.3 YoY; Feb: 1.1%), solely due to the high base effect

− MoM (14.2%; Feb: -5.5%): charted a significant recovery and soared to a 12-month high.

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

− Manufacturing output should remain supported by strong domestic demand and the recent recovery in external trade, although exports outlook is somewhat uncertain. Malaysia’s PMI remained unchanged in April (48.8) but indicated stronger external demand as new export orders increased for the first time in nine months. Despite the downside risks associated with global growth, these could be mitigated by China’s stronger economic recovery.

− We expect GDP growth to ease in 1Q23 and 2Q23 (4Q22: 7.0%) to 5.1% and 3.5%, respectively, due to the normalisation of domestic fiscal policy and the slowing global economy. However, overall growth will likely remain supported by strong domestic demand, spurred by a lower unemployment rate and rising tourist arrivals, as well as decent external demand. At this juncture, we maintain our 2023 GDP growth forecast at 4.7% (2022: 8.7%).

Source: Kenanga Research - 10 May 2023