Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid.
PETALING JAYA: The man on the street may not be making much of the hardworking Statistics Department’s frequent publication of index numbers, but economists are continuing to use them as a barometer to judge how the country’s growth is ticking along.
With the publication of July’s industrial production index (IPI) numbers yesterday, which showed a 5.3% year-on-year (y-o-y) increase compared to the same month last year, the experts are generally upbeat about the productivity and economy, moving forward.
Put simply, the IPI is a monthly economic indicator that measures real output in the mining, manufacturing, and electricity sectors, and data is taken from the production of Petroliam Nasional Bhd and production data for 245 selected industries in the manufacturing sector.
Additionally, the data on the production of crude palm oil, refined palm kernel oil and palm kernel oil from the Malaysian Palm Oil Board and input on the generation of electricity from Tenaga Nasional Bhd
, Sabah Electricity Sdn Bhd and Sarawak Energy Bhd are also taken into account.
Aside from the 5.3% y-o-y growth in July, which itself was an expansion from the 5% recorded for June, the Statistics Department also reported that for the first seven months of 2024, the IPI also grew 4.1% y-o-y, which was a significant acceleration against the 1.1% seen for January to June 2023.
Chief economist at Bank Muamalat (M) Bhd Mohd Afzanizam Abdul Rashid believes Malaysia stands to benefit from the improvement in global demand for semiconductors, given that such products account for a sizeable share in the country’s exports and IPI.
In light of the proliferation of artificial intelligence, the Internet of Things and cloud computing, among others, the demand for intergrated circuits (ICs) is expected to grow, he said.
“The World Semiconductor Trade Statistics has projected that global semiconductor sales would grow 16% and 12.5% for 2024 and 2025, respectively.
“This would be primarily driven by IC-related products such as logic and memory,” Mohd Afzanizam told StarBiz. On top of that, he said the consumption of semiconductor-related products has also gone beyond traditional markets such as smart phones and computers, making their presence in other industries such as automotive and agriculture, the latter for initiatives including precision farming.
He said the smart devices being used in these areas will effectively accelerate the consumption of semiconductor products.
Likewise, TA Research is maintaining its optimism about the country’s economic outlook at the beginning of the third quarter (3Q24), particularly with the manufacturing and mining sectors poised to contribute significantly to the country’s 3Q24 gross domestic product (GDP) growth.
“The purchasing managers’ index (PMI) for Malaysia’s manufacturing sector reflects encouraging trends. Current data suggest that GDP growth is progressing at a pace comparable to that of the previous quarter,” it observed.
As present, the research firm reported that the average PMI for the quarter stands at 49.7, and although it is still slightly below the neutral mark of 50, it indicates a stabilisation in the manufacturing sector with early signs of recovery.
“If the PMI for September remains close to its current level, we can reasonably anticipate similar growth rates to persist, likely within the 4.5% to 5% range, supporting our y-o-y GDP growth target of 4.7% for the quarter,” it predicted in a note to clients yesterday.
In agreement, Hong Leong Investment Bank Research is also expecting Malaysia’s industrial production to remain expansionary in the coming months, benefiting from a low base effect and sustained domestic spending.
Nevertheless, it cautioned that downside risks remain, stemming from ongoing geopolitical conflicts as well as rising concerns over the sluggish growth in China and weaker growth in the United States.
On a relevant note, Mohd Afzanizam is of the view that domestic demand will continue to be the lynchpin of the economy, despite the intensifying growth of export-oriented industries to 7.8% in July.
While commenting that the stand on the government’s fiscal policy is still expansionary, judging from its deficit-to-GDP ratio, he is nonetheless expecting the degree of expansion to be reduced over time, as Putrajaya is aiming for a lower deficit and eventually a balanced budget at some point in the future.
“The monetary policy is also supportive of growth as reflected by the stability in the overnight policy rate, while the labour market is effectively fully employed, and therefore, more Malaysians will receive a stable income stream.
“Brighter prospects on the ringgit and equities market would translate into better sentiment among investors and businesses. Hence, domestic demand is poised to be the anchor of Malaysia’s economic growth,” he explained.
Similarly, the stronger July 2024 numbers have also fuelled the expectations of Bank Islam Malaysia Bhd Securities Research for sustained growth in the domestic sector despite external challenges.
Citing the Statistics Department, it reported that for the month in review, the IPI had surged in South Korea, Singapore, Japan, Vietnam and Thailand, while China and Taiwan saw slower growth, and the United States experienced a slight decline.
“The country’s IPI remained positive, driven by strong manufacturing performance and is expected to continue into the second half. We expect continued expansion in the manufacturing sector despite the August manufacturing PMI remaining below the neutral rate of 50 for the third straight month,” it added.
It is notable that the Statistics Department credited the upturn in domestic-oriented industries primarily to a robust growth in the manufacture of non-metallic mineral products, and the manufacture of basic metals, which registered increases of 12.2% and 10.5%, respectively.
Moreover, it said the manufacture of motor vehicles, trailers and semi-trailers also rebounded with a growth of 3.9% in July against a contraction of 10.7% in June.
Concurrently, it discovered that the growth in export-oriented industries was underpinned by a broad-based expansion across all industries, particularly by a double-digit growth of 21.9% in the manufacture of vegetable and animal oils and fats; and followed by the manufacture of computer, electronics and optical products which saw 5% growth y-o-y in July.
