Malaysia’s industrial production jumps 4.7% in May, exceeding economists’ forecast

[KUALA LUMPUR] Malaysia’s industrial production index (IPI) in May increased 4.7 per cent from a year earlier, boosted by factory output from domestic-oriented industries, said the Department of Statistics Malaysia (DOSM) on Wednesday (Jul 12).

The growth reversed the downturn in the previous month – industrial production was down 3.3 per cent in April – and well exceeded the forecast of 0.5 per cent growth by a group of 12 economists in a recent Reuters poll.

Economists said the latest industrial production data showed that domestic sectors will remain the primary growth driver for Malaysia’s economy as external demand slows.

In May, output from the manufacturing sector surged 5.1 per cent year on year, from a 3 per cent decline in April. This was mainly driven by the production of food and beverages, tobacco, transport equipment, as well as non-metallic mineral, basic metal and fabricated metal products.

The mining sector climbed 2.9 per cent in May (from a 4.9 per cent decline in April), as the Natural Gas as well as the Crude Oil and Condensate indices rose 4.5 per cent and 0.6 per cent, respectively.

Following the improvement from the manufacturing and mining sectors, the electricity sector rose 5 per cent in May.

DOSM chief statistician Mohd Uzir Mahidin said all 14 segments under domestic-oriented industries saw improvements in May, resulting in a double-digit growth of 10.1 per cent year on year in May (from a 2.1 per cent decline in April).

The export-oriented industries recorded slower year-on-year growth of 2.8 per cent in May, with some segments such as textiles, wood and rubber products seeing declining production.

From January to May, Malaysia’s IPI moderated to 2 per cent year on year.

OCBC senior Asean economist Lavanya Venkateswaran said the improvements in May’s IPI were broad-based, reflecting not only the impact of the moving Hari Raya holidays but also some domestic demand resilience.

In a note on Wednesday, she noted that the resilient domestic demand “justifies Bank Negara Malaysia’s relative sanguine growth outlook” at its monetary policy meeting last week, which saw the country’s overnight policy rate remaining unchanged at 3 per cent.

MIDF Research said in a report that it views the rebounding industrial production as an indication of improved business activities.

“All sectors generally recorded higher production as workers returned to work and businesses resumed production after festive celebrations,” the report said.

It also observed that manufacturers are more cautious on their production plans due to the bleak outlook on external demand.

“The commodity sector was hit by both lower prices and slower demand, the electrical and electronics sector was affected by declining external and domestic demand, as demand for gadgets and electronics dropped due to more workers returning to work in office,” the report added.

Hong Leong Bank economist Choong Yin Pheng shared a similar view, noting that retail sales have been decelerating for 11 straight months, “signalling softening consumer spending as post-reopening pent-up demand waned”.

Coupled with declining exports of 9.1 per cent year on year in April and May, she expects softer economic growth in the second quarter this year but is maintaining full-year gross domestic product (GDP) growth forecast at 4 per cent.

Bank Negara will release the second-quarter GDP data on Aug 18.