Recovery in global demand contributes to rise in country’s IPI

Economists say the optimistic outlook for the IPI is underpinned by the anticipated rebound in external demand and global manufacturing activities.

PETALING JAYA: Malaysia’s industrial production is expected to maintain its positive momentum for the remaining part of this year.

This followed the 6.1% year-on-year (y-o-y) increase in the country’s industrial production index (IPI) in April, bringing the year-to-date output growth to 3.9% y-o-y.

According to economists, this optimistic outlook for the IPI is underpinned by the anticipated rebound in external demand and global manufacturing activities. This in turn is expected to support the country’s economic growth for 2024.

In its report, TA Research said it maintained a positive outlook on the economy due to the expected recovery in external demand alongside global manufacturing activities, which would bolster Malaysia’s industrial production.

The brokerage maintained its IPI growth forecast at 3.9% y-o-y in 2024, a substantial increase from 2023’s 0.7% y-o-y growth.

“The stabilisation of manufacturing activities is a crucial element in the projected improvement of the IPI,” TA Research said, noting the latest Purchasing Managers’ Index (PMI) report for May indicated a positive trend in the manufacturing sector.

The seasonally adjusted S&P Global Malaysia manufacturing PMI breached the 50-threshold, rising to 50.2 in May from 49.0 in April.

“This shift signals a rebound in the country’s manufacturing sector, suggesting that manufacturing activities are stabilising and even expanding. Such a rebound is expected to contribute significantly to the overall growth of the IPI,” TA Research said.“Moreover, the recovery in global demand is a significant factor contributing to the expected rise in Malaysia’s IPI. As global economies gradually rebound from the disruptions caused by the Covid-19 pandemic, there is an anticipated increase in demand for Malaysian exports,” it added.TA Research noted that key sectors such as electric and electronics would likely benefit from the resurgence in global demand. The heightened demand for these products would drive production levels higher, positively impacting the overall IPI, it explained.

Data from the Statistics Department on Monday showed the IPI growth accelerated to 6.1% y-o-y in April after expanding 2.4% y-o-y in March. The growth was driven by stronger mining and manufacturing production, offsetting the moderation in electricity output.

Hong Leong Investment Bank (HLIB) Research said Malaysia’s manufacturing activity is expected to improve supported by strengthening external demand in tandem with the rise in global manufacturing PMI.

“Global manufacturing PMI rose to 50.9 in May amid a rise in new orders, completion of work backlogs and improved international trade volumes.

“In tandem with the global situation, Malaysia’s manufacturing activity is also expected to remain supportive as external demand improves,” HLIB Research said.

“This is in line with the continued improvement in Malaysia’s manufacturing capacity utilisation rate,” it added.

As such, HLIB Research maintained its 2024 gross domestic product (GDP) growth forecast at 4.8% y-o-y. In 2023, Malaysia’s GDP expanded 3.7% y-o-y.

Meanwhile, Kenanga Research maintained its GDP growth forecast at 4.5% to 5% for 2024.

It said the manufacturing sector, especially the export-oriented segment, is expected to continue to recover based on the latest manufacturing PMI reading, which turned to expansion in May after 20 straight months of contraction.

“The domestic-oriented industry is expected to remain robust, supported by strong domestic demand, an increase in tourist arrivals and stable labour market conditions.

“However, downside risk persists, mainly due to US-China trade tensions, the ongoing Russia-Ukraine war and the Middle East conflicts,” Kenanga Research said.

“Additionally, congestion in ports amid the Red Sea crisis remains a concern and is expected to worsen, as Chinese exporters will likely front load their shipments to the United States in the short term, ahead of the August tariff hike,” it noted.

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