KUCHING: Growing domestic spending and sustained rise in foreign demand especially for E&E and other manufactured goods will support production to grow in coming months, analysts opine, despite the May 2022 Industrial Production Index (IPI) growth not being as high as estimated previously.
Malaysia’s IPI growth moderated further to 4.1 per cent y-o-y in May 2022, lower than the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) and market’s expectations.
“The moderation in IPI growth was mainly due to sharper decline in mining sector output (down 4.9 per cent y-o-y) because of reduced production of crude oil and natural gas,” the research arm noted.
“Although May 2022 IPI growth was not as high as we estimated, growing domestic spending and sustained rise in foreign demand especially for electrical and electronic products (E&E) and other manufactured goods will support production to grow in coming months.
“Spending activity in the domestic economy will improve further following reopening of the economy and relaxation of Covid-19 standard operating procedures (SOPs).”
That said, MIDF Research noted several risks such as rising price pressures and prolonged supply constraints could adversely affect final demand and production outlook.
“Apart from worsening of global supply chain given the uncertainty from ongoing war in Ukraine and amid ongoing shortage of materials and inputs, possible slowdown in major economies such as the US and European countries can be a more significant drag to the global growth.
“Based on the latest manufacturing purchasing managers index (PMI) which increased marginally to 50.4 in June 2022, from 50.1 in May 2022, activities in Malaysia’s manufacturing sector were slightly better last month with stabilisation in production on the back of continued growth in new orders.”
For now, the research arm maintained its forecast for IPI growth this year at 4.3 per cent, from 7.2 per cent in 2021.
RHB Investment Bank Bhd (RHB Investment Bank) also highlighted that the manufacturing sector growth is expected to remain robust in the next few months, in tandem with healthy exports following continued global recovery.
“The continued expansion in the S&P Global Malaysia Manufacturing PMI (50.4 points in June versus 50.1 points in May) signaled a stable manufacturing sector performance as well,” the research firm said.
On downside risks, RHB Investment Bank opined that the manufacturing sector outlook might be clouded by the impact of rising costs pressures and uncertainties in global landscape.
“The inflationary pressures have built up amid material shortage and elevated commodity prices.
“The Producer Price Index (PPI), which measures the costs of goods at the factory gate have trended higher in recent months and is set to stay in double-digit momentum.”
On May’s retail sales, the research firm gathered that it surged to 29.9 per cent y-o-y, marking the highest rate since April 2021, following the reopening of the economy.
“The retail spending is likely to be supported by improvement in labour market conditions and pent-up demand in discretionary spending going forward.
“The upward momentum might be tapered by the rising living costs fuelled by the inflationary pressures.”