KUALA LUMPUR (Dec 10): Malaysia’s industrial production index (IPI) in October 2024 saw its slowest annual growth in 10 months, prompting MIDF Research to revise its full-year forecast downward to 3.4% for 2024, from the earlier projection of 4.2%. The revision reflects a moderate recovery in external demand and a larger-than-expected drag from weak mining output on the overall IPI performance.
“While we expect IPI to continue growing in view of sustained rise in domestic spending and increased external demand, we remain cautious that firms will scale back production if demand turns out to be weaker than expected,” said MIDF Research in a report.
Other factors that could derail production outlook include escalation of geopolitical and trade tensions which could disrupt global supply chain stability and trade flows and increase production costs, it added.
The IPI — which measures output from factories, power plants, and mines — showed a rise of 2.1% in October from a year earlier. The increase was underpinned by growth in the manufacturing (3.3%) and electricity (2.5%) sectors, while the mining sector contracted by 2.8%.
That marked the index’s 10 consecutive months of growth, but it missed the Bloomberg consensus expectations for a 2.5% year-on-year (y-o-y) gain. In September, the IPI recorded a 2.3% y-o-y gain.
On a month-on-month basis, the index climbed 1.7%, rebounding from a 0.7% decline in September.
RHB Research flags geopolitical risks, US protectionism as key risks to 2025 outlook
RHB Research remains cautious, given the potential impact of protectionist policies under the new US administration and geopolitical tensions which would affect the trade performance and manufacturing sector outlook in 2025.
Malaysia, a key supplier in China-centric supply chains, could face significant negative impacts, especially in its electrical and electronics exports, it noted.
“In response, Malaysia could strengthen ties with economic blocs like RCEP (Regional Comprehensive Economic Partnership), BRICS (Brazil, Russia, India, China, and South Africa), and Asean to diversify trade and mitigate potential losses in US market access. Furthermore, the perceived strength of the domestic economy may help cushion some potential external shocks,” RHB Research added.
Overall, the research house opined that the verdict on growth and exports remains uncertain in the Donald Trump 2.0 scenario at the time of writing, given the lack of clarity on how or when Trump-led tariff proposals will take shape and the limited direct impact US trade and investments have on Malaysia.
On a positive note, RHB Research is sanguine on the manufacturing outlook in 2025, driven by the continued export expansion and robust global semiconductor sales. This is despite the October IPI's y-o-y growth being lower than the research house’s growth estimate of 2.5%.
The positive outlook is fuelled by a robust global and domestic economic landscape, global technology upcycle and positive investment appetite, it added.