• Industrial Production Index (IPI) fell in August (-0.3% YoY; Jul: 0.7%), beating expectations (consensus: - 2.0%; KIBB: -2.8%)
  
  − The weaker performance was mainly due to the high base effect recorded last year and partly due to a contraction in manufacturing and mining output amid a slowdown in the domestic and global economy.
  
  − MoM (2.8%; Jul: -1.8%): A surprise rebound to a threemonth high.

• Manufacturing index growth remained in a contraction (- 0.6% YoY; Jul: -0.2%) for the third straight month, in line with a sharp downturn in gross exports (-18.6%; Jul: - 13.0%) as well as weak manufacturing sales growth (- 3.3%; Jul: -3.0%)
  
  − The decline was mainly due to the high base effect recorded last year, while led by a contraction in electrical & electronic products (-3.5%; Jul: -1.6%) and a sharp moderation in transport equipment and other manufacturers (3.5%; Jul: 8.5%).
  
  − MoM (5.1%; Jul: -4.3%): growth rebounded to a two-month high.

• Mining index moderated sharply (0.1% YoY; Jul: 4.2%) and grew only marginally
  
  − Mainly due to a slowdown in crude petroleum output (-3.3%; Jul: 11.8%) and extraction of crude oil & natural gas (0.1%; Jul: 4.2%). Nonetheless, growth was supported by higher natural gas production (2.6%; Jul: -0.8%).
  
  − MoM (-5.4%; Jul: 8.0%): fell sharply despite higher crude oil prices (USD87.3/b; Jul: USD85.2/b) during the month.

• Electricity index growth expanded slightly in August (1.9% YoY; Jul: 1.5%)
  
  − MoM (0.3%; Jul: 1.8%): growth expanded, albeit at a slower pace.

• 2023 manufacturing index growth forecast is maintained at 1.0% (2022: 8.2%) amid subdued external demand
  
  − We expect the manufacturing downturn to persist in September following a subdued PMI reading in September (46.8; Aug: 47.8). The slowdown is mainly due to an ongoing global economic slowdown and the impact of a higher interest rate environment among the advanced economies.
  
  − Likewise, we maintain our 2023 GDP growth forecast at 3.5% - 4.0% (2022: 8.7%) as we expect slower GDP growth in the 2H23 (3.1%; 1H23: 4.2%), which is also partly due to high base effect recorded last year. However, we believe growth will remain supported by resilient domestic demand amid steady labour market conditions and gradual recovery in the services sector.

Source: Kenanga Research - 13 Oct 2023