PETALING JAYA (ANN/THE STAR) – The Industrial Production Index (IPI) for June 2023 was predominantly influenced by a decline in exports, which served as the primary factor dampening its performance in Malaysia. However, the domestic market played a role in providing a modest boost to this metric.
Malaysian Industrial Development Finance Berhad (MIDF) Research highlighted that the production of several export-oriented items, including semiconductor-based components, furniture, rubber products, wood, textiles, and oil and fats, exhibited signs of decreased output.
It pointed out that the output of refined petroleum products also declined compared to a year ago and this marked the first annual contraction after 13 months of growth between May 2022 and May 2023.
“The only product which saw output continuing to grow stronger was chemicals and chemical products which had sustained a growth for 31 straight months since December 2020,” it said.
Meanwhile, domestic-based sectors saw some growth contributing to the positive IPI on this front, which helped soften the impact from the export weakness.
MIDF Research noted the increased output of iron and steel products, and fabricated metal and non-metallic minerals had sustained growth in the construction IPI.
In the consumer sector (domestic), while there was relatively weaker production of motor vehicles, output for other products such as food and beverages and transport equipment saw growth, it said.
“We expect this trend to continue, as weakness in global demand will continue to affect export-oriented sectors, cushioned by increased production in domestic-oriented products.
“The domestic-oriented IPI rose further but at a moderate pace of 4.2 per cent year-on-year (y-o-y) compared with a 10.1 per cent rise in May 2023,” it said.
Recent trends in IPI growth, which slowed and fell by 0.3 per cent y-o-y in the second quarter of 2023, will see a moderation in gross domestic product (GDP) growth for the quarter, said MIDF Research.
Commenting also on this matter, Hong Leong Investment Bank Research (HLIB Research) said Malaysia’s manufacturing activity is also expected to remain weak in the immediate term due to subdued external conditions and the high base effect.
“We maintain our 2023 GDP growth forecast at 4.5 per cent y-o-y and expect no change in the overnight policy rate for the rest of the year,” the research house said.
HLIB Research also pointed out that output will continue to be dampened by weak new orders and a deterioration in international trade flows.
Meanwhile, TA Research said the weakness in the IPI signalled that there will be a moderation in the second-quarter GDP.
“When considering the influence of the high base effect prevalent in the second quarter of the preceding year, there is a likelihood for moderation in the second quarter’s real GDP growth, anticipated to be around 3.2 per cent y-o-y,” it said.
“This stands in comparison to the 5.6 per cent y-o-y expansion noted in the first quarter of 2023,” TA Research added.
