Malaysia’s IPI performance in Jun-22 was much better than expected as industrial output grew by +12.1%yoy (May-22: +4.1%yoy), returning to double-digit growth and the fastest expansion in 13 months. The stronger IPI was driven by the jump in manufacturing production (+14.5%yoy) and higher electricity generation (+14.1%yoy). In addition, mining sector output rebounded (+2.1%yoy) during the month, mainly due to a rebound in natural gas production and a smaller contraction in crude petroleum output.
To a certain extent, the low base effect in 2QCY21 due to the nationwide lockdown last year also boosted the production and sales performance in 2Q this year. This signals Malaysia will likely report stronger GDP growth in 2QCY22, better than 5%yoy growth in the earlier quarter.
In view of this positive result, MIDF revises its projection for IPI growth to +8.2% this year (previous forecast: +4.3%), taking into account the recent strength in industrial production in 1HCY22 and the low base effect from the lockdown last year. Thus far, local businesses have been increasing their activities on the back of an improved outlook and post-Covid economic reopening this year. Increased demand from both domestic and foreign markets will support the production outlook, particularly looking at the strong exports of E&E, palm oil, and petroleum products. Until now, we do not expect there will be another strict nationwide lockdown like last year.
Therefore, MIDF believes positive momentum will continue going into 2H of the year. We foresee the growing manufacturing output will continue as shown by the rise in Malaysia’s manufacturing PMI was 50.6 in Jul-22 (Jun-22: 50.4). However, supply-side challenges such as shortages of materials and rising costs could affect the production outlook for certain industries. For trade-oriented sectors, downside risks could also come from slowdown in major markets (like China and the US), escalation of geopolitical tension, and the ongoing war in Ukraine
