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Malaysia’s industrial production beats expectations with 10.8% growth in September

Tan Ai Leng
Published Tue, Nov 8, 2022 · 02:45 PM

MALAYSIA’S industrial production index (IPI) rose 10.8 per cent year on year in September, supported by robust mining, manufacturing and electricity output, according to latest figures from the Department of Statistics on Tuesday (Nov 8).

This was higher than the 10.3 per cent average expectation of economists in a Reuters poll, but slower than the 13.5 per cent growth reported in August.

Barclays senior regional economist Brian Tan said that the slowing from August’s figure was mainly due to an unfavourable base effect. He noted that industrial production continued to rise sequentially, “partly due to a surge in mining output, but – just as importantly – also because manufacturing remained resilient”.

The mining sector saw the largest rise of 15 per cent, nearly double the 8 per cent growth rate in August. But manufacturing and electricity slowed. Manufacturing output grew 10.4 per cent, slowing from August’s 15.2 per cent figure, while the electricity sector grew 4.1 per cent, down from 9.9 per cent.

Within manufacturing, the main contributors to growth were electrical and electronics products (up 15.5 per cent), petroleum, chemical, rubber and plastic products (up 6.5 per cent) as well as transport equipment and other manufacturers products (up 21.6 per cent).

Domestic-oriented and export-oriented industries recorded a growth of 11.2 per cent and 10.1 per cent, respectively.

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While external demand has been driving Malaysia’s industrial production, economists expect heightened worries of global recession to be reflected in manufacturing data in the coming months.

Standard Chartered Global Research chief economist for Asean and South Asia Edward Lee and economist Jonathan Koh noted that demand for Malaysia’s exports remains strong, with exports up 30 per cent year on year in September.

“Malaysia’s external demand remains strong for both electronics and commodities, though we expect electronics demand to waver in the months ahead. Looking ahead, a weak global growth outlook may result in external demand moderating for Malaysia’s external-oriented sectors,” they said in a research note.

Barclays’ Tan expects manufacturing activity to soften more visibly into this year’s fourth quarter and next year, but added that growing strength in services – driven by the revival in international travel – will offset the impact.

With the latest September figures, overall industrial production grew 12.2 per cent year on year in the third quarter, in contrast to the 1.1 per cent contraction in Q3 2021.

The quarter’s increase was attributed to growth in all three areas, with manufacturing up 13.4 per cent, electricity up 9 per cent and mining up 8.6 per cent.

In a separate release by the Department of Statistics, Malaysia’s manufacturing sales value grew 19.5 per cent year on year in September, to RM161.7 billion (S$47.6 billion).

The growth was driven by electrical and electronics products, with an increase of 24.7 per cent; petroleum, chemical, rubber and plastic products, up 27.2 per cent; and food, beverages and tobacco products, up 7.1 per cent.

A total of 2.3 million employees were engaged in the manufacturing sector in September, 3.8 per cent higher than the same period last year. Salaries and wages paid increased by 5.4 per cent year on year to RM7.8 billion.

UOB senior economist Julia Goh and economist Loke Siew Ting expect Malaysia’s businesses and labour market to be affected by a potential global recession, associated with tighter monetary policy, the energy crisis triggered by Russia’s war in Ukraine and China’s zero-Covid policy.

“The global tech downcycle has also led key electrical and electronics companies globally and domestically to scale back output further in order to manage profit margin, which implies slower hiring in the near term,” they said in a Nov 8 report.

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