Saturday 22 Jun 2024
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KUALA LUMPUR (May 10): Malaysia's Industrial Production Index (IPI) grew at its fastest pace in three months at 5.1% year-on-year (y-o-y), as all three sectors of the IPI expanded, particularly for the manufacturing sector.

MIDF Research said in a report on Tuesday (May 10) that the rise in IPI exceeded the general market's expectations. The IPI increased by 4.0% y-o-y in February and 4.3% y-o-y in January.

The manufacturing sector chalked up the strongest growth at 6.9% y-o-y in March, following 5.2% in February, according to the statistics released by the Department of Statistics Malaysia (DOSM).

Within the manufacturing sector, main sub-sectors that contributed to the growth in March were largely electrical & electronics products (18.6%). Other main sub-sectors like non-metallic mineral products, basic metal & fabricated metal products grew at 5.6% while food, beverage & tobacco products expanded 4.1%.

Output for the mining sector grew 0.3% in March from the previous year. DOSM said that the growth was mainly driven by the 5.7% increase in the natural gas index. However, crude oil and condensate index declined 6.8%.

As for the electricity sector output, it went up by 0.8% in March y-o-y.

The IPI also saw stronger output growth in export-oriented industries, supported by the manufacturing of electrical equipment (22.4%), manufacturing of computer, electronics & optical products (20.5%) and manufacturing of coke & refined petroleum products (12.5%).

However, the IPI growth in domestic-oriented industries moderated 5.1% y-o-y, the slowest in six months, said MIDF, on the back of moderation in output of consumption goods and lower production of motor vehicles.

"Going forward, we expect the reopening of the economy and improving supply conditions will be positive for production outlook in the coming months. However, supply-related constraints remain the key downside risk to production outlook, whereas demand is expected to continue growing going forward," said the research house.

Notably, the research house highlighted that the pace of global production activities slowed in March, which came in line with the decline in global manufacturing Purchasing Managers' Index (PMI) to 52.9 points.

It was the slowest expansion since October 2020, noted the research house.

"The weaker output reflects the challenges faced by producers from supply constraints and rising commodity prices, particularly due to the war in Ukraine. While we foresee high commodity prices and rising input costs will continue to limit production growth, we are concerned that the weaker external demand given the lockdown in China will be another drag on top of delayed normalisation in the supply condition," it explained.

MIDF is, nonetheless, expecting to see production activities in Malaysia to continue expanding as activities in the manufacturing sector improved in April 2022, with the manufacturing PMI increasing to 51.6 points compared with 49.6 in March.

However, it cautioned that even though the IPI growth was better than expected in the first three months of the year, the ongoing war in Ukraine and the lockdown in China could affect Malaysia's export-oriented sectors. The rising production costs and shortages of materials could also affect the local production outlook.

That said, MIDF noted that the domestic-oriented sectors will benefit from further reopening of the economy and relaxation of Covid-19 restrictions.

The research house maintained its forecast of the IPI growth at 4.3% for 2022, compared with 7.2% for 2021.

Edited ByChong Jin Hun & Kathy Fong
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