Data Highlights

• Malaysia's Industrial Production Index (IPI) for August has recorded a steady increase of 4.1% YoY to 134.5 points but below consensus estimation of 5.5% YoY gain. On a monthly basis, the index exhibited an increase of 1.7% (Jul24: -1.5% MoM).

• The manufacturing component, which makes up a substantial 65.9% share of the IPI, increased by 6.5% YoY during the month (4.0% MoM). Notably, the resilience growth in the sector was driven by the steady performance of export-oriented industries, which rose by 7.5% YoY as compared with 7.8% YoY gain previously. Meanwhile domestic-oriented industries increased by 7.1% YoY, albeit slower than Jul’s 7.5% YoY.
   
  • Export-oriented industries - The rise was primarily driven by most of the sectors, such as Manufacture of vegetable and animal oils and fats (Aug24: 22.6% YoY); Manufacture of rubber products (Aug24: 11.1% YoY); Manufacture of rubber products (Aug24: 10.5% YoY); Manufacture of computer, electronics and optical products (Aug24: 8.7% YoY); and Manufacture of furniture (Aug24: 7.3% YoY).
     
  • Domestic-oriented industries - Most of the products registered a growth, such as Manufacture of tobacco products (Aug24: 15.3% YoY); Printing and reproduction of recorded media (Aug24: 10.8% YoY); Manufacture of fabricated metal products, except machinery and equipment (Aug24: 10.3% YoY); and Manufacture of other non-metallic mineral products (Aug24: 9.5% YoY). See Figure 6 for segment performance.

• In accordance with the steady increase in manufacturing output, the sector posted a higher sales value of RM163.95bn in the latest reporting period, denoting an increase of 7.1% (Jul24: 9.1% YoY). The increase was driven largely by Food, beverages & tobacco; and Electrical & electronics products sub-sectors at 16.1% and 10.4%, respectively. On a MoM basis, the sales value grew by 4.4% from RM157.06bn in July 2024.

• On the contrary, the mining output, which constitutes 25.1% of the total IPI, decreased by 6.4% YoY in August 2024 (Jul24: -5.0% YoY). The decline was mainly due to a drop in crude oil and natural gas production by 5.7% and 7.0% YoY, respectively. On a MoM basis, this segment decreased by 6.9%. 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 4.1% YoY (-2.0% MoM) during the month (Jul24: 7.0% 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

• The performance in the first eight months of 2024 demonstrates solid resilience, with overall output increasing by 4.1% YoY, maintaining the growth rate observed in 7M24. This positive trend was primarily driven by robust growth in the electricity sector (8M24: 6.7% YoY), the manufacturing sector (8M24: 4.4% YoY), and the mining sector (8M24: 1.8% YoY).

• We remain optimistic about the economic outlook for the third quarter, particularly with the manufacturing segment (Jul-Aug 2024: 7.1% YoY; 2Q24: 4.9% YoY) set to play a key role in driving Malaysia’s 3Q24 GDP growth. The Purchasing Managers' Index (PMI) for Malaysia’s manufacturing sector signals resilience, with the average PMI for 3Q24 standing at 49.6 — only a marginal dip from 49.7 in 2Q24. Manufacturing’s contribution to GDP is projected to rise by 4.5% YoY in 3Q24, slightly below the 4.7% YoY recorded in 2Q24. This robust manufacturing performance is expected to partially offset the decline in the mining sector, which contracted by 5.7% YoY in the July-August period, compared to a 2.4% YoY gain in 2Q24.

• However, risks to future demand persist as evidence suggests conditions may remain subdued in the short term. Production declined further amid stagnant new orders, while purchasing activity and inventory levels continued to decrease. Additionally, global economic uncertainties, particularly around trade tensions and supply chain disruptions, could weigh on Malaysia’s export-driven sectors. On a positive note, employment levels saw slight improvement for the first time in four months, while inflationary pressures eased and remained below their series averages.

• Further, energy prices and commodity market volatility remain key challenges for sectors like mining and electricity. Rising global energy prices could increase production costs, while a moderation in prices may boost competitiveness in the energyintensive industries. Government policies, such as fiscal reforms and support for technological adoption, could further support long-term growth. While the near-term outlook remains positive, especially with strong growth in key sectors, navigating external risks and sustaining momentum will depend on managing inflationary pressures, adapting to global demand shifts, and continuing to implement supportive government policies.

Source: TA Research - 14 Oct 2024