PETALING JAYA: Despite the rise in Malaysia’s November 2024 industrial production index (IPI) released last Friday that beat estimates, economic growth momentum is expected to grow at a slower pace reflective of the slower gains in manufacturing activities in the fourth quarter ended Dec 31, 2024 (4Q24) period versus the 3Q24 period.
The IPI, which measures productivity in manufacturing, electricity and mining, rose to a three-month high of 3.6% year-on-year (y-on-y) in November beating the market consensus of 2.5%.
The manufacturing and electricity sub-indices showed strong growth y-on-y while the mining sub-index saw a smaller decline. Month-on-month (m-on-m), the IPI grew 1% from a contraction. Year-to-November, the IPI has grown 3.7%.
TA Securities expects overall economic output to moderate over 4Q24 on a slowdown in the manufacturing and electricity sub-indices of the IPI in comparison to the higher growth rates seen in 3Q24. “This suggests a potential deceleration in gross domestic product expansion, which had been 5.3% y-on-y in 3Q24,” it noted.
TA Securities, which has maintained 4Q24 GDP forecast at 4.7% and full-year GDP forecast at 5%, said a better understanding of 4Q24 GDP would be available with the advance GDP estimates to be released this Friday. “These preliminary figures are anticipated to offer valuable insights into the key drivers of economic growth during this crucial period,” it said.
BIMB Securities said that while Malaysia’s manufacturing sector would benefit from a recovering global economy this year on continued external demand, risks cannot be ignored. It pointed to a contraction in the country’s December 2024 purchasing managers’ index (PMI) as highlighting persistent challenges, including a decline in external demand since March. The PMI gauges trends in manufacturing and services sectors.
“Additionally, protectionist policies under the new US administration could disrupt trade flows and weigh on the manufacturing sector in 2025. Geopolitical tensions, trade disputes, and potential policy shifts remain key uncertainties that could impact Malaysia’s trade performance,” it said, adding that China’s recovery would be particularly critical owing to the deep trade ties between the two countries.
BIMB Securities said there was consistent growth in employment in the manufacturing sector in November 2024, with 1% rise y-on-y in employment from the 0.9% growth in October while on a m-on-m basis, manufacturing sector employment increased by 0.1% versus 0.4% in October.
Parsing the data further, CIMB Securities, which has maintain 2024’s GDP growth at 5.2%, said IPI growth for the October-to-November period decelerated 2.8% y-on-y from 3.9% in 3Q24 signalling slowing industrial activity momentum in 4Q24, with the PMI gauge showing firms scaling back in production and purchasing activity amid subdued demand.
“Despite challenges in the manufacturing sector, robust performance in the services sector may help offset this weakness. Strong tourism activity, supported by rising income levels and resilient household spending, continues to bolster services-related industries. Malaysia also remains supported by stable domestic demand and sustained global trade activity, which should provide a buffer against softening industrial output in the near term,” it said.
