KUALA LUMPUR (May 9): RHB Research revised its first-quarter gross domestic product (GDP) growth forecast upwards to 5.1% year-on-year (y-o-y) from 4.2%, on the back of better-than-expected March Industrial Production Index (IPI) data. 
 
Associate Research Analyst Wong Xian Yong, in a note on Tuesday (May 9) said the research outfit maintains a 2023 GDP growth forecast at 5% against consensus estimate of 4%. 
 
Wong said the external demand and production are likely to improve by the second half of 2023, following the anticipated recovery in global economy. 
 
“Meanwhile, domestic demand will remain robust on the back of resiliency in consumer spending and well supported by labour market conditions,” he said. 
 
Malaysia’s industrial production index (IPI) improved by 3.1% y-o-y in March 2023, driven by a 4.1% expansion in the manufacturing sector, and a 0.8% rebound in the mining sector. 

Meanwhile, Wong expects Bank Negara Malaysia to increase the overnight policy rate (OPR) to a peak of 3.25%, against Bloomberg consensus estimate for the OPR of 3%. 
 
“Strong labour market conditions, low real interest rates, and a weak currency are likely to keep the momentum of core CPI inflation elevated for the next few months,” he added. 
 
Hence, he said the central bank will need to tighten monetary conditions further via hiking the OPR by another 25 basis points (bps). 

While the country’s IPI improved, the electricity index slipped by a negative 0.3% during the month, versus a positive 1.1% in February 2023, according to the Department of Statistics Malaysia (DOSM). 

Month-on-month, the IPI saw a 8.3% growth in March 2023, after a consecutive three-month declining trend. However, growth in the IPI moderated to 2.8% versus 4.0% registered in the last quarter of 2022. 

Separately, RHB said the resilient manufacturing production was supported by stable growth in both export- and domestic-oriented industries. 

The increase in the export-based industry in March at 3.6% y-o-y was driven by the manufacturing of computer, electronics & optical products, vegetable and animal oils and fats, and coke and refined petroleum products. 

Meanwhile, growth in the domestic-oriented industry in March at 5.1% y-o-y was mainly supported by the manufacture of motor vehicles, trailers and semi-trailers, as well as the manufacture of fabricated metal products.