Data Highlights

• Malaysia's industrial sector witnessed a promising beginning as the overall output experienced a significant rebound in January. The Industrial Production Index (IPI) rose by 4.3% YoY to 132.8 points. This exceeded the expected growth of 2.0% YoY and marked a notable recovery from the marginal 0.03% YoY decline observed in the preceding month. Furthermore, on a monthly basis, the index demonstrated a 2.0% increase. 
   
• The manufacturing component, which makes up a substantial 65.9% share of the IPI, rebounded by 3.7% YoY during the month (with a MoM increase of 21.8%). Notably, the turnaround in the sector was driven by the vibrant performance of domestic-oriented industries, which picked up to 8.0% YoY (Dec23: 4.2% YoY), while export-oriented industries returned to a growth of 1.6% YoY after seven consecutive months in negative territory (December 2023: -4.1% YoY). 
   
  • Export-oriented industries in the country recorded a YoY increase of 1.6%, better than the 4.1% YoY contraction registered previously. The raise was primarily driven by most of the sectors, excluding manufacture of vegetable and animal oils and fats, and manufacture of coke and refined petroleum products at -2.6% and -3.0%, respectively. The performance of these industries was in tandem with the recent outstanding trade performance as total exports rose by 8.7% YoY to RM122.43bn. 
     
  • Domestic-oriented industries surged by 8.0% YoY, vs. 4.2% annual increase previously. Namely, most of the products registered a growth, such as manufacture of motor vehicles, trailers and semi-trailers (12.1% YoY); manufacture of fabricated metal products, except machinery and equipment (11.9% YoY); and manufacture of leather and related products (8.9% YoY) 
     
• In accordance with the steady in manufacturing output, the sector posted a higher sales value of RM152.7bn in the latest reporting period, denoting a rebound of 3.2% (Dec23: -4.2% YoY). The expansion was bolstered by the strong growth of 15.8% YoY in the transport equipment & other manufactures sub-sector (December 2024: 6.4% YoY), coupled with the upward trend of the food, beverages & tobacco products sub-sector which surged by 11.4% YoY (December 2023: -2.6% YoY). In addition, the non-metallic mineral products, basic metal & fabricated metal products sub-sector continued to grow vigorously, expanding by 9.6% YoY (December 2023: 7.4% YoY). 

• At the same time, the mining output, which constitutes 25.1% of the total IPI, rose by 5.0% YoY in December 2023 (Dec23: 4.1% YoY). The details revealed that the oil and natural gas output increased by 2.6% and 6.6% YoY, respectively as compared with the previous month’s 1.6% and 5.9% YoY, respectively. On a MoM basis, this segment rose by 3.1%. The mining sector encompasses the production of crude oil and natural gas, which accounted for 83.1% of the gross output value and 89.6% of the census value-added of the mining sector in 2015. 

• The electricity index, which represents 6.6% of the total IPI, surged by 48.3% YoY (2.0% MoM) during the month (Dec23: 4.1% YoY). Moreover, the increase indicates an increasing momentum in the operations of the businesses. To note, the electricity index refers to the generation, collection, transmission, or distribution of electric energy to households, industrial, or commercial users.

Our Thoughts

• Anticipating a positive trajectory for 2024, we project that a recovery in external demand coupled with global manufacturing activities will fortify Malaysia's industrial production, leading to a growth target of 3.9% (2023: 0.7%). The sustained expansion of domestic demand is expected to further contribute to the overall IPI growth this year. Our optimism is also grounded in the recent stabilisation of manufacturing activities in February, as highlighted in the latest Purchasing Managers' Index (PMI) report. The readings indicate a slight deterioration in business conditions that was the softest since the current sequence of decline began in September 2022. The PMI stood at 49.5 points. However, it is important to acknowledge potential downside risks. The performance of the IPI may face challenges from prolonged or exacerbated overseas demand constraints, particularly concerning the sluggish economic recovery in China. Additionally, geopolitical tensions and disruptions to trade flows remain as concerns that could impact the growth trajectory.

Source: TA Research - 13 Mar 2024