● Industrial Production Index (IPI) growth slightly rebounded in July (0.7% YoY; Jun: -2.2%), beating expectations (KIBB & Consensus: -0.2%)

- The YoY positive growth was contributed by an expansion in the mining and electricity indices but was partially capped by weak manufacturing output and partly due to a low base (a sharp MoM contraction of 4.7% in July 2022).

- MoM (-1.8%; Jun: 2.2%): fell to a three-month low, particularly due to a MoM contraction in the manufacturing output.

● Manufacturing index growth remained in a contraction (- 0.2% YoY; Jun: -1.6%), albeit smaller, for the second straight month, in line with a sharp downturn in gross exports (-13.1%; Jun: -14.1%) and a weak manufacturing sales growth (-3.0%; Jun: -4.0%)

- The decline was led by a contraction in petroleum, chemical, rubber & plastic products (-4.1%; Jun: -4.6%) and electrical & electronic products (-1.6%; Jun: -3.6%), albeit at a smaller contraction than the previous month. Nevertheless, growth was partially mitigated by an expansion in food, beverages and tobacco (3.9%; Jun: 2.9%) and transport equipment and other manufacturers (8.5%; Jun: 1.7%).

- MoM (-4.3%; Jun: 5.5%): growth fell to a three-month low.

● Mining index rebounded to a six-month high (4.2% YoY; Jun: -6.4%), following a sharp contraction in the previous month

- Growth was attributable to a broad-based improvement in all subsectors, led by a surge in crude petroleum output (11.8%; Jun: -4.5%), followed by extraction of crude oil & natural gas (4.2%; Jun: -6.4%), and a smaller contraction in natural gas production (-0.8%; Jun: -7.8%).

- MoM (+8.0%; Jun: -7.7%): rebounded to a four-month high, largely due to higher crude oil prices (USD85.2/b; Jun: USD74.5/b) during the month.

● Electricity index growth eased to a three-month low in July (1.5% YoY; Jun: 2.8%) due to a high-base effect

- MoM (1.8%; Jun: -5.3%): growth rebounded, following a sharp contraction in the previous month.

● 2023 manufacturing index growth forecast revised down to 1.0% from 2.4% (2022: 8.2%) following a sharply lower 2Q23 GDP growth and subdued external demand

- We continue to expect a sluggish manufacturing output in the near term following a subdued PMI reading in August (47.8; Jul: 47.8) and falling exports in July (-13.1%; Jun: -14.1%) amid weak external demand, stemming from an ongoing global economic slowdown particularly the slower than expected China’s post-COVID-19 recovery and the impact of higher interest rate environment among the advanced economies.

- Against this backdrop, we maintain our 2023 GDP growth forecast at 3.5% - 4.0% (2022: 8.7%) due to the expectation of slower GDP growth in the 2H23 (3.1%; 1H23: 4.2%) amid the impact of global economic slowdown and partly due to higher base effect recorded last year. However, growth will remain supported by a resilient domestic demand amid steady labour market conditions and gradual improvement in the services sector.

Source: Kenanga Research - 12 Sept 2023