• Industrial Production Index (IPI) fell for the second straight month in September (-0.5% YoY; Aug: -0.3%), slightly below consensus (-0.1%) but far lower than the house forecast (2.8%)
  
  − The weaker performance was mainly due to the high base effect recorded last year, which is expected to last until September. This also reflects a slowdown in the global economy as pent-up demand eased while appended by the impact of a higher interest rate environment.
  
  − MoM (1.1%; Aug: 2.8%): Growth momentum moderated but remained positive for the second month.
  
  − 3Q23 (0.0%; 2Q23: -0.3%): Overall, IPI stagnated during the quarter on a YoY basis, mainly due to the high base effect recorded in 2Q22 (12.2%).

• The manufacturing index rebounded marginally (0.4% YoY; Aug: -0.6%) after three months of contraction since June following a high base effect recorded in 2022 and supported by domestic-oriented industry
  
  − The rebound in growth was mainly supported by the domestic-oriented manufacturing sector, which expanded to 5.9% (Aug: 4.2%) led by expansion in non-metallic mineral basic, basic metal & fabricated metal (8.0%; Aug: 4.0%) and food, beverages & tobacco (5.0%; Aug: 3.8%). Meanwhile, the export-oriented sector (-2.0%; Aug: -2.6%) remained weak, led by electrical & electronic products (-2.0%; Aug: -3.5%).
  
  − MoM (2.2%; Aug: 5.1%): growth moderated but remained positive for the second month.
  
  − 3Q23 (-0.1%; 2Q23: 7.3%): fell marginally to an eight-quarter low due to the high base effect recorded last year.

• Electricity index growth expanded to a three-month high in September (2.5% YoY; Aug: 1.9%)
  
  − MoM (-4.0%; Aug: 0.3%): fell sharply to a three-month low.
  
  − 3Q23 (2.0%; 2Q23: -0.2%): growth rebounded to a four-quarter high.

• 2023 manufacturing index growth forecast retained at 1.0% (2022: 8.2%)
  
  − We expect the manufacturing downturn to ease from October onwards as the high base effect dissipates. Nevertheless, we keep our cautiously optimistic outlook, following a subdued PMI reading in October (46.8; Sep: 46.8), while the impact of the higher interest rate environment in the advanced economies may continue to weigh on external demand.
  
  − Likewise, we maintain our 2023 GDP growth forecast at 3.5% - 4.0% (2022: 8.7%) as we expect slower growth in the 2H23 (3.1%; 1H23: 4.2%) particularly weak 3Q23 (1.7%; 2Q23: 2.9%) final numbers which slated to be released next week. Note that the Department of Statistics released its advanced GDP estimates of 3.3% a few weeks ago. However, we believe growth will remain supported by a resilient domestic demand, as reflected by a steady and lower unemployment rate as well as a steady improvement in the tourism and transport sectors.

Source: Kenanga Research - 8 Nov 2023