Malaysia’s IPI registered marginal contraction of -0.1%yoy in Dec-23 (Nov-23: +0.6%yoy), below ours and market expectations. The weaker IPI was due to sharper fall in output in the export-oriented sectors such as electrical equipment, refined petroleum products and chemicals. MIDF said it was expected, the trend closely followed the weaker export performance in the same month because manufacturing contributed more than two-thirds of the IPI calculation. By major sectors, the decline in IPI in Dec-23 was largely due to sharper output declines in the manufacturing sector (Dec-23: -1.4%yoy; Nov-23: -0.1%yoy) such as motor vehicles, apart from continued reduction in the production of E&E and petroleum products. In contrast, the drop was almost offset by the stronger growth in mining output (+3.6%yoy) and electricity generation (+4.6%yoy).
For the mining sector, sustained output growth was underpinned by stronger growth in natural gas production. The higher electricity generation continued to suggest electricity consumption continued to grow annually for the 8th consecutive month. With the weaker-than-expected growth in Dec-23, IPI only grew moderately by +0.9% in 2023 (2022: +6.7%), slightly below estimates of +1.1%. Nevertheless, we expect IPI growth will improve this year on the back of sustained growth in domestic demand and recovery in external trade.
The house said the moderate IPI growth in 2023 was expected due to the weakness in the trade-oriented industries. For 2024, MIDF says it foresees a recovery in the external demand and global manufacturing activities will support Malaysia’s IPI to grow stronger at +3.7% (2023: +1.1%). Continued growth in domestic demand will also support IPI growth this year. The house is optimistic looking at the stabilisation in manufacturing activities in Jan-24 as reported by the recent PMI reports.
However, MIDF says it is still concerned that IPI growth this year may be weighed down by downside risks such as sluggish economic recovery in China and possible recession in the US. Moreover, companies may relook at production plans if global trade activities are affected by worsening geopolitical tension and disruptions to trade flows
