(June 10): Malaysia’s industrial production will likely pick up in the months ahead as robust domestic spending and rising external demand keep its factories humming following latest below-view data, economist said.
Factory activities are also rising amid “restored confidence” among manufacturers and improvement in investment appetite, RHB Investment Bank said in a note to clients. Malaysia’s export-oriented economy will benefit from China's ongoing recovery and rosier global economic landscape, the house noted.
"The current acceleration in the global technology cycle is expected to drive Malaysia's manufacturing sector activities and exports,” RHB said.
Official data show that the industrial production index — which measures output from factories, mines and power plants — reported a year-on-year gain of 6.1% in April, compared with the consensus increase of 6.5% predicted in a Bloomberg survey. On a month-on-month basis, the index fell 7.6% in April.
Manufacturing sales, meanwhile, rose on an annual basis for the fourth consecutive month, rising 5.7% in April to RM153.2 billion in April compared with March’s 1.4% year-on-year gain.
S&P Global Malaysia Manufacturing Purchasing Managers' Index out earlier this month showed that factory activity expanded for the first time in 20 months, thanks to growth in new orders and exports.
Exports of electrical and electronics will be supported by global demand, RHB said, citing global semiconductor sales that rose 15.7% year-on-year in April and by 1.1% month-on-month from March.
Further, higher commodity prices will likely spur manufacturing activities, particularly for petroleum, petroleum-based, non-metal mineral and metal products, RHB IB said.
RHB IB also expects domestic consumer spending to remain robust amid healthy labour conditions. “Robust imports of capital goods and rising business confidence suggest that manufacturers' and businesses' optimism are up,” it said.
MIDF Amanah Investment Bank shared a similar view, adding that the production of both export- and domestic-oriented products will grow further amid growing demand from both domestic and external fronts.
The house flagged several downside risks that could curb production activities, including weaker growth prospects in major trading partners such as the US and China, heightened inflationary pressures, and potential disruptions to global trade and supply amid geopolitical tensions.
The latest industrial production reading dovetails with modest improvement in factory output of major Asian exporters China, South Korea, Vietnam, Thailand and Taiwan over the same month. However, industrial production in Singapore, Japan and the US declined.
Still, “we continue to expect global production to pick up this year driven by recovering global trade, restocking of inventories and materials in anticipation of growing demand,” MIDF added.