Industrial Production Index rebounded strongly in October, marking its highest in five months and surpassing consensus and house forecast.
Kenanga said the positive performance primarily stemmed from a broad-based expansion, led by the mining sector and the waning of the high base effect noted last year. This suggests that the recovery could accelerate into 2024, backed by a rebound in the external sector led by China and other emerging economies. MoM: Growth momentum expanded with the third straight month of positive expansion.
The manufacturing index expanded for the second consecutive month, mainly supported by domestic-oriented industry and a smaller contraction in the export-oriented sector. Domestic-oriented: expanded to 6.7% led by solid expansion in the manufacture of motor vehicles, trailers & semi-trailers, and food processing products. Export-oriented: contracted for the fifth straight month albeit at a reduced rate. Growth continues to be hindered by weak electrical & electronic sector performance. MoM: growth fell to a three-month low.
Electricity index growth surged to a five-month high of 5.8% in October, marking its sixth consecutive month of positive expansion. MoM: rebounded sharply to a five-month high.
2023 manufacturing index growth is likely to settle around forecast of 1.0% (2022: 8.2%) Kenanga said, with further recovery expected next year at 3.2%. Year-to-date, IPI grew by 1.0% compared to 7.3% recorded in the same period last year, primarily due to weakened global trade impacted by geopolitical tensions, higher interest rates in advanced economies and China’s slower- than-expected post-pandemic recovery. The house also expects the domestic-oriented sector will sustain growth in the remaining months of this year and throughout 2024. Meanwhile, a recent uptick in the Manufacturing PMI reading, despite still being in contraction, coupled with a smaller contraction in October’s exports, suggests a possible near-term recovery in the export-oriented manufacturing sector.
Reflecting the latest IPI reading, the house anticipates a continued manufacturing recovery and project a rebound in the value-added manufacturing GDP growth of 1.5% in 4Q23. This, along with a resilient services sector, is expected to propel overall 4Q23 GDP growth to 3.7% (3Q23: 3.3%). Consequently, it maintains 2023 GDP growth forecast at 3.5% – 4.0% and foresee an expansion to 4.9% in 2024, supported by further domestic and global economic recovery.
