Data Highlights

• Malaysia's Industrial Production Index (IPI) has recorded a notable rise of 5.3% YoY to 132.2 points and matched the consensus forecast. On a monthly basis, however, the index exhibited a decline of 1.6% (Jun24: 4.8% MoM).

• The manufacturing component, which makes up a substantial 65.9% share of the IPI, increased by 7.7% YoY during the month (-2.0% MoM). Notably, the resilience growth in the sector was driven by the steady performance of export-oriented industries, which rose by 7.8% YoY compared to a 5.4% YoY gain. Meanwhile, domestic-oriented industries increased by 7.5% YoY, better than May's 6.4% YoY.
   
  • Export-oriented industries - The rise was primarily driven by most of the sectors, such as Manufacture of vegetable and animal oils and fats (Jul24: 21.9% YoY); Manufacture of coke and refined petroleum products (Jul24: 11.7% YoY); Manufacture of rubber products (Jul24: 10.5% YoY); Manufacture of wood and products of wood and cork, except furniture; Manufacture of articles of straw and plaiting materials (Jul24: 9.7% YoY); and Manufacture of machinery and equipment (Jul24: 6.5% YoY).
     
  • Domestic-oriented industries - Most of the products registered a growth, such as Manufacture of tobacco products (Jul24: 23.4% YoY); Printing and reproduction of recorded media (Jul24: 14.1% YoY); Manufacture of other non-metallic mineral products (Jul24: 12.2% YoY); and Manufacture of basic metals (Jul24: 10.5% YoY). See Figure 6 for segment performance.
     
• In accordance with the steady increase in manufacturing output, the sector posted a higher sales value of RM157.1bn in the latest reporting period, denoting an increase of 9.1% (Jun24: 8.6% YoY). The increase was driven largely by a double-digit growth of 16.0% (Jun24: 8.6%) in the Food, beverages & tobacco sub-sector; followed by the sub-sector of Electrical & electronics products (8.2% YoY); and the Petroleum chemical, rubber & plastic (6.2% YoY). On a MoM basis, the sales value grew by 0.6% from RM156.1bn in June 2024.

• On the contrary, the mining output, which constitutes 25.1% of the total IPI, decreased by 5.0% YoY in July 2024 (May24: -6.9% YoY). The decline was mainly due to a drop in crude oil and natural gas production by 4.4% and 5.4% YoY respectively. On a MoM basis, this segment decreased by 2.1%. 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, rose by 7.0% YoY (5.4% MoM) during the month (Jun4: 3.5% 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

• With the steady increase in July's output, overall performance has shown significant improvement in the first seven months of the year. Total output rose by 4.1% YoY in 7M24, compared to 3.9% YoY in 6M24. This positive trend was primarily driven by robust growth in the electricity sector (7M24: 7.1% YoY), the manufacturing sector (7M24: 4.1% YoY), and the mining sector (7M24: 2.9% YoY).

• We remain optimistic about the economic outlook at the beginning of the third quarter, particularly with the manufacturing and mining sectors poised to contribute significantly to Malaysia’s 3Q24 GDP growth. The Purchasing Managers' Index (PMI) for Malaysia’s manufacturing sector reflects encouraging trends. Current data suggests that GDP growth is progressing at a pace comparable to that of the previous quarter. As of now, the average PMI for the quarter stands at 49.7 (YTD: 49.4). Although still slightly below the neutral mark of 50, this indicates a stabilization in the manufacturing sector with early signs of recovery. If the PMI for September remains close to its current level, we can reasonably anticipate similar growth rates to persist, likely within the 4.5%–5.0% range (2Q24: 4.7%), supporting our YoY GDP growth target of 4.7% for the quarter.

• However, risks to future demand persist, as current evidence suggests conditions may remain subdued in the short term. In the absence of new order growth, firms have been working through their existing orders, which has led to a cautious outlook. Additionally, businesses have scaled back on purchases, reduced employment, and limited stock holdings. These adjustments reflect the uncertainty surrounding near-term demand and signal that companies remain wary of committing to expansion until more evident signs of recovery emerge.

Source: TA Research - 11 Sept 2024