Data Highlights

• Malaysia's Industrial Production Index (IPI) recorded a moderate increase of 2.3% YoY to 133.6 points, below consensus estimate of 3.5% YoY. On a monthly basis, the index declined 0.7% (Aug24: 1.7% MoM).

• The manufacturing component, which makes up a substantial 65.9% share of the IPI, increased at a softer pace of 3.2% YoY during the month (-1.1% MoM). Notably, the moderation in the sector was driven by the weak performance of export-oriented industries, which rose by only 3.4% YoY as compared with 6.3% YoY gain previously. Meanwhile domestic-oriented industries moderated by 2.7% YoY, much slower than Aug’s 7.1% YoY.
  • Export-oriented industries – The subcomponent growth mostly slowed down in September, with two segments registering a contraction. Specifically, the Manufacture of coke and refined petroleum products experienced a decline of 2.8% YoY, while the Manufacture of textiles dropped by 2.3% YoY. Despite these setbacks, overall growth was largely supported by strong performance in several key areas. The Manufacture of rubber products saw a robust increase of 8.6% YoY. This was followed by a 6.1% YoY growth in the Manufacture of wood and products of wood and cork (excluding furniture) and the manufacture of articles of straw and plaiting materials. Additionally, the Manufacture of computer, electronics, and optical products grew by 5.9% YoY, and the Manufacture of furniture rose by 5.2% YoY.
     
  • Domestic-oriented industries - Most products showed moderate growth, including the Manufacture of food processing products, Printing and reproduction of recorded media, and other non-metallic mineral products. However, the Manufacture of motor vehicles, trailers, and semi-trailers fell sharply by 14.9% YoY, mainly due to disruptions from the new e-Invoicing system. This digital system, introduced by the Inland Revenue Board (LHDN), uses the MyInvois portal and APIs linked to company tax systems to streamline transactions. While aimed at speeding up invoice processing and approvals, the shift may have temporarily impacting automotive sales.
     
• In accordance with the slower increase in manufacturing output, the sector posted a lower sales value of RM1162.3bn in the latest reporting period, denoting an increase of 2.1% (Aug24: 7.7% YoY). The rise was primarily driven by the Electrical & electronics products sub-sector, which grew by 5.8% YoY after a 10.3% YoY increase in August 2024. The growth was also supported by the Food, beverages & tobacco sub-sector, with an increase of 5.6% YoY, and the Non-metallic mineral products, basic metal & fabricated metal products, which increased by 5.1% YoY. On a MoM basis, the sales value dropped by 1.0% from RM163.9bn in August 2024.

• On the contrary, the output in the Mining sector shrank by 2.2% YoY in September 2024 (August 2024: -6.4% YoY). The decline was primarily influenced by Crude Oil & Condensate production, declined further to 11.4% YoY (August 2024: -5.7% YoY), offset by rebound in Natural Gas production which grew by 4.5% YoY (August 2024: -7.0% YoY) during the month.

• Meanwhile, the electricity generation grew by 3.9% YoY in September 2024 (Aug24: 4.2%). On a positive note, 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

• The performance in the first nine months of 2024 demonstrates resilience, with overall output increasing by 3.9% YoY, albeit slower than the growth rate observed in 8M24. This positive trend was primarily driven by robust growth in the electricity sector (9M24: 6.4% YoY), the manufacturing sector (9M24: 4.3% YoY), and the mining sector (9M24: 1.4% YoY).

• On a quarterly basis, the overall IPI increased by 3.9% YoY, driven by positive contributions from both the manufacturing and electricity sectors, while the mining index experienced a decline. This performance aligns with our projections for a moderation in Real GDP growth during this period. We are maintaining our forecast for overall GDP growth to reach 5.2% YoY for the third quarter of 2024.

• With Donald Trump became the US president for a second term, the overall impact on global demand remains uncertain. Malaysia's industrial production could experience mixed effects, heavily contingent upon Trump's trade and economic policies and broader global economic conditions. If he reinstates or intensifies previous protectionist measures, such as tariffs on Chinese goods or trade restrictions affecting other key economies, global trade flows could be disrupted. Given Malaysia’s status as an export-driven economy, this could lead to reduced demand for its manufactured goods, negatively impacting industrial production.

• Historically, during Trump's previous tenure as president from 2017 to 2019 (pre-COVID), Malaysia's IPI trajectory reflected a downtrend, with average growth recorded at 3.00%, compared to a higher growth rate of 4.7% from 2013 to 2016. This suggests potential vulnerabilities but also highlights areas where Malaysia's industry could adapt to global shifts.

• We will continue to closely monitor the performance of the IPI and assess the external environment that may influence its trajectory. This proactive approach will enable us to identify potential challenges and opportunities, ensuring timely and effective responses to shifts in global and regional dynamics.

Source: TA Research - 11 Nov 2024