• Industrial Production Index (IPI) rebounded strongly in October (2.7% YoY; Sep: -0.5%), marking its highest in five months and surpassing consensus (2.4%) and house forecast (2.3%)
  
  − The positive performance primarily stemmed from a broad-based expansion, led by the mining sector and the waning of the high base effect noted last year. This suggests that the recovery could accelerate into 2024, backed by a rebound in the external sector led by China and other emerging economies.
  
  − MoM (2.2%; Sep: 1.1%): Growth momentum expanded with the third straight month of positive expansion.

• The manufacturing index expanded (0.9% YoY; Sep: 0.4%) for the second consecutive month, mainly supported by domestic-oriented industry and a smaller contraction in the export-oriented sector
  
  − Domestic-oriented: expanded to 6.7% (Sep: 5.8%) led by solid expansion in the manufacture of motor vehicles, trailers & semi-trailers (10.6%; Sep: 2.6%), and food processing products (9.4%; Sep: 8.2%).
  
  − Export-oriented: contracted for the fifth straight month albeit at a reduced rate (-1.5%; Sep: -2.0%). Growth continues to be hindered by weak electrical & electronic sector performance (-3.9%; Sep: -2.0%).
  
  − MoM (-1.3%; Sep: 2.1%): growth fell to a three-month low.

• Electricity index growth surged to a five-month high of 5.8% in October (Sep: 2.5%), marking its sixth consecutive month of positive expansion
  
  − MoM (5.3%; Sep: -4.0%): rebounded sharply to a five-month high.

• 2023 manufacturing index growth is likely to settle around our forecast of 1.0% (2022: 8.2%), with further recovery expected next year at 3.2%
  
  − Year-to-date, IPI grew by 1.0% compared to 7.3% recorded in the same period last year, primarily due to weakened global trade impacted by geopolitical tensions, higher interest rates in advanced economies and China’s slowerthan-expected post-pandemic recovery. We expect the domestic-oriented sector will sustain growth in the remaining months of this year and throughout 2024. Meanwhile, a recent uptick in the Manufacturing PMI reading (47.9; Oct: 46.8), despite still being in contraction, coupled with a smaller contraction in October’s exports (-4.4%; Sep: -13.8%), suggests a possible near-term recovery in the export-oriented manufacturing sector.
  
  − Reflecting the latest IPI reading, we anticipate a continued manufacturing recovery and project a rebound in the value-added manufacturing GDP growth of 1.5% in 4Q23 (3Q23: -0.1%). This, along with a resilient services sector, is expected to propel overall 4Q23 GDP growth to 3.7% (3Q23: 3.3%). Consequently, we maintain our 2023 GDP growth forecast at 3.5% - 4.0% (2022: 8.7%) and foresee an expansion to 4.9% in 2024, supported by further domestic and global economic recovery.

Source: Kenanga Research - 12 Dec 2023