The latest report on Malaysia’s Industrial Production Index indicated growth had strengthened marginally and stabilised at +4.8%yoy in Nov-22 (Oct-22: +4.6%yoy), beating the market’s expectations. It was the 15th straight month of expansion since recovering from the nationwide lockdown in 2021.
IPI growth in Nov-22 was supported by stronger manufacturing output (+4.8%yoy; Oct-22: +4.2%yoy) and rebound in
electricity generation (+1.2%yoy; Oct-22: -1%yoy).
Higher production of E&E products, motor vehicles, machinery & equipment, and food products contributed to the stronger manufacturing IPI. Mining output also grew during the month with increased output of crude petroleum and natural gas, but the pace of growth in mining IPI moderated to +6.1%yoy due to higher base. The better-than-expected IPI growth in Nov-22 closely tracked the sustainable exports which also strengthened on stronger external demand from major countries like China, US, and Europe, particularly driven by higher exports of E&E products. The sustained IPI growth also reflects the positive effect on business activity from economic reopening as well as improvement in supply conditions.
Given the better-than-expected growth in Nov-22, IPI grew at +7.3%yoy in the first 11 months last year. As a result, IPI will likely grow at +7% for the whole of last year, better than the projection of +6%.
Going into 2023, MIDF projects IPI to grow at a more moderate pace of +3.5% 2023 taking into account the expected moderation in external demand as well as the absence of low-base effect, which previously boosted IPI growth to double-digit growth particularly in June-September last year.
Increased demand, mainly from expansion in domestic spending, will be a key factor to support IPI growth this year. MIDF foresees that production will also increase facilitated by improved supply conditions, which include easing cost inflation and a better supply of foreign workers. However, it remains cautious that several risks could still constrain IPI growth, such as a sharp fall in external demand, elevated inflation, and renewed supply disruptions.
