Malaysia's industrial sector poised for growth despite slower February IPI - Analysts

KUALA LUMPUR - Analysts are optimistic about the growth prospects for Malaysia’s industrial sector this year, despite a softer industrial production index (IPI) growth of 3.1 per cent year-on-year recorded in February 2024.

Although the IPI growth in February increased modestly, marking a slowdown from the 4.3 per cent growth recorded in January, it surpassed market expectations of a growth rate between 1.5 per cent and 1.8 per cent by a considerable margin.

Public Investment Bank Bhd in a note said that, however, external demand remains the primary risk factor influencing the Malaysian economy.

"While both the government and central bank anticipate economic expansion within the range of 4-5 per cent for the year, our outlook suggests a more conservative estimate of around 3.7 per cent, contingent upon the magnitude of downside risks exerting notable influence,” it added.

Yesterday, the Department of Statistics Malaysia (DoSM) said the moderation of February’s IPI was primarily attributed to the slower output growth in the manufacturing sector, which grew by 1.2 per cent compared with 3.7 per cent in January 2024.

Kenanga Investment Bank Bhd (KIBB) said the manufacturing index forecast is retained at 4.6 per cent in 2024 (2023: 0.7 per cent), as the momentum may pick up pace in the second half of 2024.

"We continue to believe that the manufacturing condition will improve further towards the end of the year, mainly driven by the expected upswing in the technology cycle and China's gradual recovery following a significant stimulus implemented by the country.

"Nevertheless, the manufacturing condition could experience a sluggish recovery in the near term, as reflected by the latest Manufacturing Purchasing Managers' Index (PMI) reading, which fell to 48.4 in March (Feb: 49.5) and remained at a contraction level since August 2022,” it said in its Economic Viewpoint.

Its assumption is also based on the positive growth trajectory supported by higher demand from regional peers and better-than-anticipated performance among advanced economies.

"With that said, we project the first quarter (1Q) of 2024 gross domestic product growth at 3.3 per cent (4Q 2023: 3.0 per cent) and maintain overall growth forecast at 4.5 per cent - 5.0 per cent in 2024 (2023: 3.7 per cent),” it said.

Meanwhile, Hong Leong Investment Bank Bhd said on the global front, the manufacturing PMI rose to 50.6 in March (February: 50.3), driven by strengthened new order inflows amid a broadening out-of-demand recovery from consumer goods to intermediate goods.

It said the demand increase was also aided by a near-stabilisation of global goods export orders, which observed the smallest decline in the ongoing 25-month trend of contraction.

"This signals further recovery for Malaysia’s manufacturing industry, coupled with support from continued domestic growth and the implementation of national masterplans,” it said in its Economics report. - BERNAMA