• Industrial Production Index (IPI) contracted in December (-0.1% YoY; Nov: 0.6%), below expectations (KIBB: 1.5%; consensus: 0.6%). Overall, growth for 2023 settled at 0.9% (2022: 6.7%), a tad lower than house forecast of 1.0%

− The subdued performance was attributed to muted manufacturing, particularly in the export-oriented subsector. However, the slowdown was partially offset by an expansion in mining and electricity sectors.

− MoM (-1.3%; Nov: -0.9%): contracted to five-month low and remained in a contraction for the second consecutive month

− 4Q23 (1.0%; 3Q23: 0.0%): charted a positive expansion, marking a three-quarter high.

• The manufacturing index fell in December (-1.4% YoY; Nov: -0.1%), a two straight month of contraction, mainly due to a deeper contraction in the output of exportoriented sub-sector. Overall, manufacturing index moderated sharply to 0.7% in 2023 (2022: 8.2%)

− Domestic-oriented: moderated to 4.2% (Nov: 5.8%), reaching an eight-month low but was supported by higher output in fabricated metal products (9.7%; Nov: 8.9%), food processing products (6.2%; Nov: 10.9%) and nonmetallic mineral products (5.3%; Nov: 6.9%).

− Export-oriented: contracted for the seven straight month (-4.1%; Nov: -2.7%) and the weakest since May 2020. This was primarily due to the subdued output of computer, electronics and optical products (-7.2%; Nov: -8.6%), the biggest component in the manufacturing sector, followed by electrical equipment (-7.6%; Nov: -1.1%) and textiles (-6.1%; Nov: -4.8%).

− MoM (-2.6%; Nov: -0.3%): decline for the third straight month and the lowest in five months.

− 4Q23 (-0.2%; 3Q23: -0.1%): fell further albeit slightly, indicating a prolonged downturn in the manufacturing sector.

• Mining index growth expanded to 3.6% (Nov: 1.9%) with 2023 growth slowed to 0.8% (2022: 2.2%)

− Attributable to higher output in natural gas (5.0%; Nov: 1.7%) and extraction of crude oil & natural gas (3.6%; Nov: 1.9%). However, the momentum was capped by lower output of crude petroleum (1.6%; Nov: 2.1%).

− MoM (2.8%; Nov: -1.8%): rebounded following a contraction in the previous month.

− 4Q23 (4.3%; 3Q23: -0.4%): rebounded to a four-quarter high or highest since 4Q22.

• Electricity index expanded (4.6%; Nov: 4.3%), with overall 2023 growth settled at 2.5% (2022: 3.6%)

− MoM (1.1%; Nov: -4.7%): rebounded, following a sharp contraction in the previous month.

− 4Q23 (4.9%; 3Q23: 1.9%): expanded to a five-quarter high.

• Manufacturing index forecast to expand to 4.6% in 2024, on anticipation of a robust recovery in the 2H24

− Given the persistence slowdown in manufacturing index growth, we maintain 4Q23 GDP growth at 3.7% compared to 3.4% advance estimates by DOSM. With that said 2023 GDP growth is expected to settle within our forecast range of 3.5% - 4.0%. Likewise, we expect the manufacturing sector recovery will take up pace particularly in the 2H24 driven by technology upcycle, and China’s gradual post-pandemic recovery. Alongside resilient services sector back by an increase tourist arrival, we expect 2024 GDP growth to expand further to 4.9%.

Source: Kenanga Research - 8 Feb 2024