IPI suggests upside bias for 1Q24 GDP growth
KUCHING: March’s stronger industrial production (IPI) suggests an upside bias for Malaysia’s first quarter of 2024 (1Q24) gross domestic product (GDP) growth, analysts observed.
Of note, according to the Department of Statistics Malaysia (DOSM), Malaysia’ Industrial Production Index (IPI) increased by 2.4 per cent yearon-year (y-o-y) in March 2024, spurred by the expansion in all sectors.
The increase was spearheaded by the expansion in the manufacturing sector, which grew by 1.3 per cent, up from 1.2 per cent in February 2024.
The research team at MIDF Amanah Investment Bank Bhd (MIDF Research) pointed out that Malaysia’s IPI extended its expansionary growth into the third consecutive month, advancing 2.4 per cent y-o-y in March 2024 (February 2024: 3.1 per cent y-o-y).
Despite the softer pace of growth than the previous month, the advance still surpassed market expectations of 2.0 per cent y-o-y as all major sectors sustained its growth trend.
“Looking at the stronger IPI growth of 3.3 per cent y-o-y in 1Q24 (4Q23: 0.8 per cent y-o-y), this was in line with the stronger growth momentum during the quarter as indicated in the advance GDP estimate, which rose by 3.9 per cent y-o-y (4Q23: 3.0 per cent y-o-y),” it said.
The manufacturing sector output has also posted positive growth on a month-on-month (m-o-m) and year-on-year (y-o-y) basis.
The research team at RHB Investment Bank Bhd (RHB IB) remarked, “The current developments – improvement in exports by regional economies, strengthened economic momentum of China and resiliency in US data reinforced our positive view of Malaysia’s and the overall global trade outlook.
“This is reinforced by higher momentum in Malaysia’s export-oriented industries, led primarily by E&E, petroleum and petroleum-based products, and mineral products amid more robust external demand. In particular, E&E is expected to be driven by re-acceleration in the global technology cycle and higher demand from major trade partners.”
It pointed out that as an exportoriented economy, Malaysia will benefit from China’s ongoing recovery and the global trade backdrop.
“We expect a continued economic recovery in key economies such as the US, China and selected Asean economies,” it added.
“As such, Malaysia’s growth will likely stay underpinned by externally-facing industries, specifically its manufacturing and trade sectors. More importantly, we think that the manufacturing sector will be Malaysia’s key growth engine in the next decade,” RHB IB highlighted.
Beyond the positive spillover effects from the global economy, it also believe higher commodity prices, improving domestic confidence, and healthy labour conditions may support Malaysia’s growth dynamics.
“First, commodity-based sectors such as petroleum and petroleum-based products and non-metal mineral and metal products are expected to gain from higher commodity prices as well and likely spur manufacturing activities.
“Second, robust domestic consumption and investment activities in 2024 are also anticipated to support the manufacturing sector – increased imports of capital goods and rising business confidence suggest that manufacturers’ and businesses’ optimism are up.
“Further upsides on investment activities would emanate from business-friendly policies and the implementation of catalytic initiatives under the national master plans.
“Third, consumer spending is expected to remain robust amid healthy labour market conditions,” it explained.
All in, RHB IB expect Malaysia 1Q24 GDP to expand at 4.0 per cent, with upside risk.
Meanwhile, MIDF Research said it maintained its projection that Malaysia’s IPI will grow stronger at 3.7 per cent this year (2023: 1.1 per cent).
“We foresee business outlook will continue to remain positive anticipating domestic spending to continue growing and external demand to recover this year,” it said.
However, it also remained cautious over several downside risks such as weak growth in major economies (China and the US), continued pressures from higher-than-expected inflation and potential disruptions to the global supply chain in view of the ongoing geopolitical tensions.
“These external developments could adversely affect the outlook for global trade and production activities,” it added.