PETALING JAYA: Malaysia’s real industrial output, as measured through the Industrial Production Index (IPI), is expected to remain moderate despite a 4.9% year-on-year (y-o-y) rise in August and a 2.4% month-on-month rebound from a 0.3% decline in July, amid uncertainty on the export front.
The August IPI expansion was supported by a robust 16.8% jump in mining activity and a 2.8% gain in manufacturing, while the electricity index remained steady with a 1.6% rise.
Within manufacturing, export-oriented industries grew by 2.3%, moderating from 4.1% in July.
Analysts remain cautious, with TA Research noting that a clearer picture of industrial output and overall economic performance will emerge when the government releases the advance gross domestic product (GDP) estimates for the third quarter (3Q) on Oct 17.
The research house maintained its forecast of 2% growth for Malaysia’s IPI this year.
“While the robust performance of the mining sector has been a key driver of industrial growth in 3Q, the moderation in manufacturing output suggested that overall GDP growth may ease during the period,” the research house said, citing the high-base effect from last year and the manufacturing sector’s larger share of GDP offsetting gains.
TA Research, which expects 4.4% GDP growth for the year, maintained its forecast of 4.1% expansion in 3Q GDP, reflecting a moderation in manufacturing activity despite continued strength in mining.
It also cautioned about the near-term outlook for the country’s export-oriented industries.
MBSB Research, which also maintained IPI growth at 2%, pointed to sustained domestic spending supporting domestic-oriented industries.
While domestic-oriented industries reported slower growth, mainly due to lower automobile production, other segments such as food, beverages and tobacco products continued to register increases.
“We expect a sustained rise in domestic spending and local business activity will support production of domestic-oriented products,” the research house said.
“On the other hand, we remain cautious about the near-term outlook, as further tariff hikes and a potentially sharper slowdown in external demand could dampen exports and production activity.”
Kenanga Research noted that, on a year-to-date basis, manufacturing growth averaging 3.9% y-o-y aligns with its full-year prediction, anticipating 3Q growth to reach 4% or slightly above 2Q’s 3.9%.
This corresponds with the country’s September Purchasing Managers’ Index or PMI, a gauge of manufacturing, hovering near the neutral 50-mark.
The research house expects modest expansion in 4Q on slower external demand, largely due to the impact of higher US tariffs tempering output.
“Domestic demand should continue to support domestic-oriented industries amid sustained domestic activity,” it said.