• Industrial Production Index (IPI) expanded to 5.0% YoY in June (May: 2.4%), beating expectations (KIBB: 3.0%; consensus: 4.2%)
  
  − The increase was mainly driven by strong manufacturing output and a recovery in the mining sector, though the momentum was somewhat limited by slower electricity output.
  
  − On MoM, growth rose to 4.9% (May: 3.5%), reaching a three-month high.
  
  − 2Q24 (4.5%; 1Q24: 3.3%): increased to a seven- quarter high, partly due to a lower base effect.

• The manufacturing index accelerated in June (5.2% YoY; May: 4.6%) driven by a recovery in manufacturing exports
  
  − Domestic-oriented: slowed (4.6%; May: 6.4%) to a three-month low, due to a decline in the output of motor vehicles, trailers & semi-trailers (-10.7%; May: 10.3%), as well as slower growth in food processing products (3.9%; May: 4.3%). However, the slowdown was partially mitigated by strong growth in the construction-related manufacturing sectors, such as fabricated metal products except for machinery & equipment (12.6%; May: 6.5%), other non-metallic mineral products (8.9%; May: 9.8%) and basic metals (8.0%; May: 5.4%).
  
  − Export-oriented: expanded (5.4%; May: 3.7%), reaching a 21-month high, driven by a rebound in the output of coke & refined petroleum products (12.5%; May: -5.5%) and a surge in the output of vegetable & animal oils & fats (11.0%; May: 4.8%). Notably, the output of computer, electronics & optical products (4.9%; May: 8.4%) slowed.
  
  − MoM (6.1%; May: 6.7%): moderated slightly, but growth remained relatively strong.

• Mining index growth rebounded (4.9%; May: -6.9%), reversing the sharp contraction of the previous month
  
  − Led by a rebound in natural gas (6.0%; May: -10.3%) and crude oil & condensate (3.4%; May: -1.9%) production.
  
  − MoM (4.0%; May: -8.9%): growth rebounded, reaching a three-month high

• Electricity index slowed (3.5%; May: 4.5%) to a seven-month low
  
  − MoM (-6.2%; May: 5.7%): fell sharply, hitting a 16-month low.

• The manufacturing index forecast is retained at 4.6% (2023: 0.7%)
  
  − The manufacturing sector’s output is expected to sustain growth in the near term, despite the latest ManufacturingPurchasing Managers' Index (PMI) slipping below the neutral rate of 50.0 in July (49.7; Jun: 49.9). This outlook is partly supported by anticipated recovery in export-oriented industries, led by a technology upcycle and ongoing government multiyear infrastructure projects. While domestic-oriented manufacturing has slowed recently, growth is expected to remain stable for the rest of the year, supported by EPF Account 3 withdrawals, increased tourist arrivals, and a stable labour market.
  
  − Given the strong manufacturing output in 2Q24 (4.9%; 1Q24: 2.1%) and robust domestic demand as reflected in distributive trade (6.4%; 1Q24: 5.4%), the actual GDP performance for 2Q24 could exceed our current forecast of 5.1% (DOSM Advance Estimate: 5.8%). However, we are maintaining the overall 2024 GDP forecast at 4.5% - 5.0% (2023: 3.6%) with a potential upside toward the higher end of this range.

Source: Kenanga Research - 13 Aug 2024