Malaysia’s IPI growth slowed further to +1.8%yoy in Jan-23, slightly below the forecast and market consensus. Nevertheless, the moderating trend was expected in view of the subdued export growth and below-50 manufacturing PMI reading in Jan-23. The Jan-23 IPI growth, which was the slowest in 17 months, was due to weaker manufacturing output (+1.3%yoy) and a reduction in electricity generation (-4.3%yoy). Apart from declines in the production of rubber products, basic metals, and computer & peripheral equipment, the slower manufacturing output reflected weaker growth in the output of E&E, machinery equipment, and food products. Meanwhile, reduced electricity output indicated lower energy demand during the month. On the other hand, mining output was stronger in Jan-23 following higher output of crude petroleum and LNG. This was also similar to the trend in external trade, which saw stronger exports of petroleum products during the month.
MIDF says despite the slightly weaker-than-expected Jan-23 data, the house is maintaining its projection that overall IPI growth to moderate to +3.5% this year from +6.7% growth last year. Production will continue to grow to cope with increasing demand, both from domestic and export markets. Domestic demand will remain key, given the continued double-digit growth in retail sales. Nevertheless, the research house has priced in slower IPI growth taking into account the absence of the low-base effect and softer external demand this year.
Still, it foresees exports and production outlook to benefit from continued demand for E&E components and petroleum products, on top of the expected positive effect from the reopening of China’s economy. On the other hand, MIDF said it remains cautious that weaker-than-expected global demand and regional production network could be the downward drag to Malaysia’s IPI outlook this year
