IPI rebound improves growth outlook for industrial sector

KUALA LUMPUR: The rebound in Malaysia’s January Industrial Production Index (IPI) has further brightened the growth prospects for the industrial sector this year.

Public Investment Bank Bhd said the IPI growth transitioned into positive terrain, rising to 4.3 per cent year-on-year (y-o-y) in January from a prior reading of -0.03 per cent y-o-y in December 2023, higher than market projection of 2.0 per cent, despite continued challenges stemming from diminishing foreign demand.

Therefore, it believes growth prospects for the industrial sector will improve this year.

“The 2024 global semiconductor market anticipates a robust recovery with a projected double-digit growth rate of 13.1 per cent, surpassing earlier estimates of 11.8 per cent.

“This bodes well for Malaysia’s manufacturing sector and the semiconductor industry worldwide, particularly for major electrical and electronics (E&E) exporters like Malaysia, wherein this segment’s product exports contribute over 40 per cent to total gross exports,” it said in a note.

In 2024, the Ministry of Finance expects a significant 5.5 per cent increase in manufactured goods exports, bolstering positive sentiment.

“However, Malaysia remains susceptible to global economic fluctuations, especially in electronics and semiconductor sectors, amidst modest global economic growth projections for 2024.

“Heavy reliance on key trade partners such as the United States (US), China, and the European Union raises concerns for Asean trade, compounded by the impact of major elections in key trading partners like the US, South Korea, and India,” it highlighted.

On top of that, the Red Sea crisis escalation poses a significant threat to global supply chains and business costs.

“Despite these risks, an anticipated rise in electronics exports and favourable base effects could partially mitigate negative impacts, with Malaysia’s exports of goods and services forecast to rebound by 5.4 per cent in 2024,” it said.

Meanwhile, Hong Leong Investment Bank Bhd expects Malaysia’s manufacturing activity to gradually gain momentum as trade activity recovers as the global manufacturing Purchasing Managers’ Index has crept back into expansionary territory in February.

This is also in line with the latest uptrend in Malaysia’s manufacturing capacity utilisation rate of 79.8 per cent in the fourth quarter (4Q) of 2023 compared with 79.4 per cent in 3Q.