The Industrial Production Index (IPI) growth fell sharply in June, registering above house estimates but below market expectations.
“The YoY contraction was driven by a sharp decline in the manufacturing and mining indices but was mainly attributable to a high base from June 2022,” said Kenanga Research (Kenanga) in the recent Economic Viewpoint Report.
MoM, it slowed to a two-month low, particularly due to a MoM contraction in the mining and electricity indices.
Manufacturing index growth returned to a contractionary level, driven by a sharp downturn in exports and a similar contraction in manufacturing sales.
The decline was led by a contraction in petroleum, chemical, rubber & plastic products and electrical & electronic products, both of which reached a three-year low, as well as slower growth in the food, beverages & tobacco segment. MoM, growth eased primarily due to a slowdown in export-oriented industries.
“Mining index fell to its lowest level in 13-months. The contraction was attributable to a broad decline in all subsectors, led by a downturn in extraction of crude oil & natural gas, a 13-month low, followed by natural gas production and crude petroleum output, which reached its lowest level in 11 months,” said Kenanga.
MoM, it fell to a two-month low as crude oil prices edged lower. Electricity index growth eased in June on a low-base effect. MoM, it plunged to its lowest level in four months.
For 2023, the manufacturing index growth forecast is maintained at 2.4%. Manufacturing output will likely remain sluggish in the near-term, as suggested by the subdued PMI reading in July.
This will primarily be due to weak external demand, stemming from a global economic slowdown. Advanced economies in North America and Europe are poised to experience a significant deceleration, potentially tipping into recession later in 2H23, whilst China’s recovery remains uneven.
Although manufacturing output should still be supported by robust domestic demand this year, a stronger recovery hinges on a reversal of fortunes in China, perhaps facilitated by new fiscal stimulus measures.
“We maintain our 2023 GDP growth forecast at 4.7% but we expect 3Q23 growth to record a sharp moderation to 3.4% from an estimated 6.0% in 2Q23, weighed by the global economic slowdown,” said the research house.
