Malaysia: Mixed views on next growth path

PETALING JAYA: Economists are weighing up different opinions on the latest industrial production index (IPI) data for March in terms of the country’s next economic growth path for 2023, which is widely expected to moderate from last year’s high of 8.7%.

The Statistics Department yesterday released the IPI numbers for March and cumulatively for the first quarter of the year (1Q23), which revealed that IPI for the third month of 2023 has grown by 3.1% year-on-year (y-o-y) to 130.6 points, after recording a 3.5% y-o-y increase in February.

The published data consisted of three sectors – mining, manufacturing and electricity.

Juwai IQI global chief economist Shan Saeed is buoyant on the latest industrial production growth that was driven by the manufacturing sector, which experienced a 4.1% expansion for March.

As the global growth pivot heads towards Asia, he told StarBiz that it is not surprising for countries such as Malaysia, Indonesia and Vietnam would continue to drive growth in Asean, underpinned by strong demand for manufacturing goods despite slowdown in advanced economies.

“We believe this momentum would continue for the next two to three years as post-lockdowns, Asian economies have come out stronger with solid consumption patterns as well as higher trade and commerce numbers.

“Global investors are moving funds into regions where growth stability is tantamount to strong consumption outlook,” Shan noted.

Malaysia's industrial prodeuction indexMalaysia’s industrial prodeuction index

Moreover, he said the cost of production has been kept low as inflation rates have remained at single digits for Malaysia, coupled with accommodative monetary policies, while policy framework stability and higher economic policy benefits will continue to drive the growth and development of Asean.

“We continue to have a positive outlook for Malaysia, with gross domestic product growth forecast to meander around 4.5% to 5.5% for 2023,” he said.

However, according to Malaysia University of Science and Technology economics professor and dean Geoffrey Williams – who offered a balancing perspective by looking at the bigger picture – monthly IPI figures are volatile and a clearer view will emerge if the index numbers and performances are analysed over a longer timeframe.

“The March 2023 figures are back to around where they were in November and December 2022 and are still around where they were in June 2022, so they have essentially been flat over the last nine months.

“This does not signal growth or recovery, but rather it signals stagnation after the recovery from the lockdowns of 2020 and 2021.

“In fact industrial production at the end of 1Q23 is only 3.2% higher than it was at the end of 2021. So growth and recovery has been slow,” he said.

Williams pointed out that while the push from China’s reopening has been a source of optimism, it is only a factor in avoiding the worst case of an extremely slow global environment.

Hence, he said it remains the case that growth in 2023 must focus on domestic markets with support from the external sector, rather than relying on exports alone.

The latest IPI numbers disclosed by the Statistics Department confirmed Williams’ comments, as chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the 4.1% y-o-y increase in manufacturing sector output for March was mainly backed by domestic-oriented industries, which rose by 5% y-o-y.

“The rise in the domestic-oriented industries was propelled by the manufacturing of motor vehicles, trailers and semi-trailers as well as the manufacturing of fabricated metal products, with respective y-o-y growths of 9.8% and 5.5%,” he said in a statement.

Mohd Uzir also said production for export-oriented industries grew by 3.6% y-o-y in March, steered by the manufacturing of vegetable and animal oils and fats, which soared by 15.2% y-o-y, as well as by the production of computers, electronics and optical products, which rose by 7.1% y-o-y.

More notably, he said sales value of the manufacturing sector in March expanded by 8% y-o-y, amounting to RM156.2bil, spurred primarily by the 14.6% growth y-o-y in transport equipment and other manufactures, on top of the 12.7% y-o-y expansion in electrical and electronics products sub-sectors.

“In comparison with the preceding month, the sales value returned to record growth of 7.6% after registering a continuous decline since December 2022,” he said, pointing out that the sales value of export-oriented industries, which contributed to 71.7% of total sales, rose 7.3 y-o-y in March 2023 after registering a 9.9% y-o-y growth in February 2023.

Liew: “In my view, domestic-oriented industries will still play a crucial role in driving growth in the country’s manufacturing sector.”Liew: “In my view, domestic-oriented industries will still play a crucial role in driving growth in the country’s manufacturing sector.”

Meanwhile, assistant professor of finance at UCSI University Malaysia and research fellow at Centre for Market Education Dr Liew Chee Yoong believes that the expansion of the manufacturing industry is a contributing factor to the overall economic growth of the country.

This was despite the fluctuations in growth rates, which are to be expected as Malaysia keeps up its recovery from the lockdowns, he added.

While recognising that there is a possibility of exports supporting growth in the local manufacturing sector with China’s reopening, Liew also shared Williams’ sentiments on external demand and remains doubtful that there will be a significant increase in exports this year.

He told StarBiz: “In my view, domestic-oriented industries will still play a crucial role in driving growth in the country’s manufacturing sector.”

Month-on-month, March’s IPI has seen an improvement of 8.3% over February’s 120.5 points.

Despite attributing the end of the festive season for the jump, both Liew and Williams said there could be other factors at play, such as production fluctuations and changes in demand.

“For example, increasing production to fulfill the back orders or meeting new demand is feasible now that markets are opening up.

“Reduced freight and supply-chain costs are also helping new orders from activities that were not viable at high freight costs before,” Williams noted.

Cumulatively for the whole of 1Q23, Mohd Uzir said the IPI has moderated to 2.8% y-o-y from the 4% growth garnered in 4Q22.

He added that the manufacturing and mining indices increased by 3.4% and 2.1%, respectively, against the corresponding quarter of 2022, while the electricity index saw a y-o-y decline of 1.2%.