KUALA LUMPUR (Sept 10): Malaysia’s industrial production is likely to sustain growth in the coming months of the year, supported by robust domestic spending and rising external demand, economists said on Tuesday.

Official data shows that the Industrial Production Index (IPI) - which measures output from factories, mines, and power plants - reported a year-on-year gain of 5.3% in July 2024, in line with the consensus forecast in a Bloomberg survey.

Manufacturing output rose by 7.7% in July, compared to 5.2% in the preceding month, while electricity output increased by 7%, up from 3.5% in June 2024. Meanwhile, the mining sector’s production declined by 5%, following a 4.9% growth in June 2024.

The rise in manufacturing output was the fastest since September 2022, driven among others by higher production of electrical and electronics (E&E) products, machinery, chemicals and motor vehicles.

Meanwhile, the 7% increase in electricity output signals continued rise in energy demand, on the back of growing economic activities. On the other hand, the fall in the mining sector’s production was due to weaker output of both crude petroleum and natural gas.

The global technology upcycle and heightened investment appetite will keep the manufacturing sector outlook positive, RHB Investment Bank said in a note to clients.

“Continued export growth and robust global semiconductor sales further support our positive assessment of Malaysia’s manufacturing industry,” the bank said.

It added that rising imports of capital and intermediate goods also suggest potential manufacturing expansion.

MIDF Amanah Investment Bank shared a similar view, expecting factory output growth to strengthen to 4.2% this year, driven by stronger external demand for export products, such as electrical and electronics (E&E), oil and fats, and refined petroleum.

“Similarly, the production of consumer goods will also increase, backed by growing domestic consumption,” it said.

Nevertheless, the investment bank flagged several downside risks that could adversely affect production plans, including weaker demand from major economies, geopolitical tensions, and supply chain disruptions.

Kenanga Investment also anticipated that the manufacturing sector’s output will sustain growth in the near term, driven by a recovery in export-oriented industries, technology, and government 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,” it said.

Following the robust IPI data, Kenanga retained its forecast for Malaysia’s IPI this year at +4.6%, compared with +0.7% last year. Similarly, MIDF maintained its projection for the index to strengthen to +4.2% this year.

“We expect [that] the recovery in external demand will support production of export products, such as E&E, oil & fats, and refined petroleum. Similarly, production of consumer goods will also increase on the back of growing domestic consumption,” MIDF said in its report.

https://www.theedgemarkets.com/node/726216