Malaysia’s industrial production up 2.4% in May, below forecast

[KUALA LUMPUR] Malaysia’s industrial production index (IPI) rose 2.4 per cent in May from the year before, missing economists’ projections due to weaker mining production, a Department of Statistics Malaysia (DOSM) report indicated on Friday (Jul 12).

The growth, slower than the 6.1 per cent observed in April, also fell short of the 4.2 per cent level forecast by 11 economists in a recent Reuters poll.

The DOSM report showed that industrial production growth was driven by manufacturing and electricity output, offsetting falling mining production.

The manufacturing sector grew by 4.6 per cent year on year (yoy), slower than the 4.9 per cent growth in April, with increased production of electrical and electronic products, non-metallic minerals, basic metals and fabricated metal products, as well as transport equipment.

The electricity sector expanded by 4.2 per cent yoy in May, the same as the previous month, driven by increased output.

Mining sector output, however, fell 6.9 per cent yoy in May, compared to 4.9 per cent growth in April, due to a decline in the production of natural gas (-10.3 per cent yoy) and crude oil (-1.9 per cent yoy).

From January to May, Malaysia’s IPI grew by 3.6 per cent, compared to a 1.9 per cent expansion during the same period last year.

Economists are seeing continued improvement in manufacturing activities, and expect the rising export demand to fuel the growth of the manufacturing sector.

Despite easing growth in May, OCBC senior Asean economist Lavanya Venkateswaran said the IPI has picked up in sequential terms – May’s industrial production recorded a month-on-month growth of 1.7 per cent, as compared to a 0.3 per cent decline in April.

She noted that the stronger expansion in industrial production, coupled with better growth in export, wholesale and retail trade as well as palm oil production and motor vehicle sales, will support the country’s gross domestic product growth.

OCBC has projected Malaysia’s GDP to expand at 4.9 per cent yoy in the second quarter of 2024. Bank Negara will announce second-quarter GDP figures on Aug 16.

MIDF Research expects manufacturing output to continue expanding in coming months, supported by increasing external demand for electrical and electronic products as well as other manufactured goods.

“Mining output is expected to recover stronger, underpinned by elevated global energy prices and higher natural gas production,” said MIDF in a quarterly review report.

The research firm projected Malaysia’s industrial output to expand at 4.2 per cent this year amid a recovery in exports.

Expansion driven by export-oriented industries

DOSM chief statistician Mohd Uzir Mahidin said the expansion in the manufacturing sector was driven by export-oriented industries, particularly those with increasing orders for computer, electronics and optical products.

“The export-oriented industries grew by 3.7 per cent in May, compared to 2.6 per cent in the previous month, marking the highest growth registered since November 2022,” he added.

Domestic-oriented industries increased 6.4 per cent yoy in May, lower than the 9.5 per cent growth in April, with gains seen in the production of motor vehicles, non-metallic minerals and fabricated metal products.

The S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) in May rose to 50.2, from 49 in April, signalling a renewed improvement in manufacturing sector conditions following 20 months of moderation.

Pan Jingyi, economics associate director at S&P Global Market Intelligence, noted that May’s PMI data indicated a turnaround from the period of subdued conditions previously, and hints at an acceleration in GDP growth into the second quarter.

“Overall sentiment also stayed positive, with firms expecting higher output in the coming year. That said, the level of confidence eased, affecting manufacturers’ willingness to acquire input inventories. These will be areas to monitor for further signs of a turnaround,” she said.