This article first appeared in The Edge Financial Daily on November 12, 2019
KUALA LUMPUR: Malaysia’s Industrial Production Index (IPI) — comprising statistics of three main sectors of mining, manufacturing and electricity — reported a steady 1.7% year-on-year (y-o-y) growth in September.
This brings the IPI for the third quarter of 2019 (3Q19) to a y-o-y growth of 1.6%, contributed by growth of the manufacturing and electricity indices, the Department of Statistics Malaysia (DOSM) announced yesterday.
Going forward, MIDF Research said Malaysia’s IPI performance is expected to continue expanding, but at a modest pace of 2.9% in the second half of 2019 (2H19) as the US-China trade war factor remains a major downside risk to global trade activities and manufacturing production in particular, which has the highest weightage in the overall IPI index.
The research house highlighted that manufacturing sales increased by 2.9% y-o-y in September, the slowest expansion rate since October 2016, in tandem with the downward trends in export performance during the month.
“The manufacturing sector, which holds about 70% of IPI weight, is expected to perform modestly in 2H19 amid escalating trade tensions and that could drag the overall IPI performance this year.
“Nevertheless, support to the IPI growth would come from OPR (overnight policy rate) cut effects, easing monetary policy measures by developed and emerging economies, low inflationary pressure, stable domestic demand and positive progression in the construction sector,” it added.
Yesterday, DOSM’s chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the growth in September was driven by an increase in the index of manufacturing (2.5%) and electricity (4.1%). Meanwhile, the index of mining recorded a decline of 1.6%.
The DOSM also reported that on a y-o-y basis, the manufacturing sector output rose by 2.5% in September after recording a growth of 3.6% in August.
The major sub-sectors contributing to the increase in September were transport equipment and other manufactures (6.3%), non-metallic mineral products, basic metal and fabricated metal products (3.8%) and petroleum, chemical, rubber and plastic products (2.1%).
“The electricity sector output increased by 4.1% in September as compared to the same month of the previous year, [while] the mining sector output dropped 1.6% in September as compared to the same period of the previous year.
“The decline was due to an decrease in the crude oil and condensate index (-4.7%). Meanwhile, the natural gas index increased by 1.1%,” it added.
RHB Research economist Ahmad Nazmi Idrus pointed out that the manufacturing sector’s productivity growth, as measured by sales value of manufactured products per employee, moderated to 1.6% y-o-y, which is the lowest pace of growth since September 2016.
Wages per employee also fell to 1.4% y-o-y, the weakest since January 2017.
“Looking ahead, we maintain our expectations for Malaysia’s economic growth to moderate to 4.5% in 2019, and 4.3% next year (2018: 4.7%), as uncertainty continues to weigh on global trade activity and the economic outlook,” he added.
Malaysia is expected to announce its 3Q19 gross domestic product data on Friday.