PETALING JAYA: MIDF Research expects the country’s industrial production index (IPI) to experience a moderate growth of 2% this year, down from 3.8% in 2024, on anticipation that external trade will be impacted by the intensified trade war and the introduction of protectionist trade policies by major economies.
The research house revised downward its outlook on the manufacturing and mining sectors, resulting in a slower IPI growth forecast.
“Nevertheless, positive IPI growth will be supported by firms’ rising production to cope with growing domestic demand,” it added.
Malaysia’s IPI grew slower than expected in February, up 1.5% year-on-year (y-o-y) in February versus a 2.1% y-o-y growth in January, but marking the 13th consecutive month of expansion since January 2024.
“The reading was weaker than expected as we anticipated a stronger IPI growth (around 3% y-o-y) in view of better export performance.
“However, it was not a surprise that the relatively weaker performance was largely due to a sharper contraction in the mining output (8.9% y-o-y; January: down 3.1% y-o-y) in view of continued weakness in the production of crude oil and natural gas.”
MIDF Research pointed out that a steeper decline in electricity output (2.8% y-o-y; January: 0.2% y-o-y) also contributed to the modest IPI growth.
On a positive note, manufacturing recorded higher output, growing faster at 4.8% y-o-y (January: minus 25: 3.7% y-o-y) due to increased output for food products (11.6% y-o-y), machinery equipment (8.4% y-o-y), and electrical and electronics products (8% y-o-y).
Motor vehicle output, however, remained weak albeit registering a slower decline of 9% y-o-y (January: 17.3% y-o-y decline).
“We anticipate IPI to continue expanding this year as firms increase production to fulfill rising demand.
“However, the pace of growth will likely moderate as production in certain sectors may be slowed as companies adopt cautious stance amid escalating trade tensions, following the recent import tariff hikes by the US government,” MIDF Research said.
On a month-on-month basis, Malaysia’s industrial production fell 0.3% in February compared with an increase of 0.2% in January.
MIDF Research said the monthly fall mainly reflected the sharp contraction in mining production, offsetting growth in electricity generation and manufacturing output.
“The decline in the manufacturing PMI to 48.8 in March from 49.7 in February suggests continued weakness in the sector as demand conditions remained subdued and marking the 10th consecutive month of contraction.
“In view of the contraction in new orders, we expect production may be constrained and slashed in the near term, especially for export-oriented products.
“We anticipate that some firms will adopt a more cautious approach to their production plans because the purchasing managers’ index report indicated a further decline in new export orders.
“This suggests that heightened global trade uncertainty is weighing on global demand,” the research house added.
