KUALA LUMPUR, March 14 (Bernama) -- Malaysia’s industrial production index (IPI) registered a moderate growth of 1.8 per cent year-on-year (y-o-y) in January (December 2022: 2.8 per cent growth), below a market expectation of 2.6 per cent due to dissipating overseas demand.
Public Investment Bank Bhd (PIVB), in a note, said although this was the 17th consecutive month of rise in industrial production, it was at the softest pace since August 2021, which contracted to 0.3 per cent, due to a slower rise in manufacturing and a decline in electricity output.
PIVB expects Malaysia’s economy to rely more on internally generated growth with domestic demand supported by private investment activities, which will likely be stimulated via the implementation of key infrastructure projects.
“We opine that the manufacturing performance output will still trend in tandem with the short-term cyclical weakening in the semiconductor industry, which has continued to grow adversely,” it said.
Given the downside risk from external factors, PIVB said it is maintaining a 3.8 per cent gross domestic product (GDP) growth projection for 2023 versus the 4.5 per cent official forecast.
PIVB said if global GDP growth deteriorates further, falling below the International Monetary Fund’s (IMF) current projection on global growth of 2.9 per cent for 2023, Malaysia’s real GDP growth could be revised lower relative to the current expectations, it said.
“However, we believe that the negative spillovers from the weakening global environment will be partially offset by China’s full reopening in 2023, which would improve their higher frequency data, in turn benefitting our domestic economy.
“Nonetheless, the pronounced positive spillovers may take much longer than expected,” PIVB said.
Meanwhile, Kenanga Research said the manufacturing output is expected to be particularly weak in the first quarter of 2023 (1Q23) due to poor external demand and tepid global economic conditions.
However, it said there is potential for exports to recover in the short term following the end of major festive periods, especially in China. Manufacturing growth should be supported by robust domestic demand, spurred by an expected rise in tourist arrivals, it said.
Malaysia's PMI showed a slight improvement in February at 48.4 versus January’s 46.5, indicating a fledgling recovery in output despite remaining in the contractionary zone.
“We recently raised our 2023 GDP forecast to 4.7 per cent from 4.3 per cent due to expectations of robust domestic demand, continued fiscal support, and tailwinds from China's reopening.
“However, 1Q23 growth may slow due to fragile global economic conditions and weaker external demand. Downside risks to overall growth remain as a result of the Russia-Ukraine conflict, tenuous Sino-American relations, and possible recessions among major economies,” Kenanga said.
Meanwhile, Hong Leong Investment Bank Bhd said that the global manufacturing purchasing managers' index (PMI) registered a reading identical to a no-change mark in February at 50.0 compared to 49.1 for January halting a five-month run of contractions.
“The upturn in output volume was driven by Asia, benefitting from China’s economic reopening and easing supply constraints.
“Nevertheless, despite the improvement in global sentiment, Malaysia’s industrial production is still expected to remain modest amid a moderate external demand environment compared to the previous year,” it added.
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