Malaysia: Weaker 4Q GDP growth likely on slower IPI
PETALING JAYA: The slowing industrial production growth in Malaysia is an indication that the country’s economic growth for the fourth quarter (4Q) of 2022 may come in significantly slower than the preceding quarter.
Economists pointed to weaker global demand as the main factor leading to their anticipation of a further moderation in the country’s industrial production index (IPI) growth in the coming months.
The anticipated slower number is also reflective of the diminishing low-base effect.
Following the release of the weaker-than-expected IPI for October, Kenanga Research said the 4Q22 gross domestic product (GDP) growth could slow to 6.6% from 14.2% in 3Q22.
AmBank Research’s preliminary estimation, on the other hand, showed that the 4Q22 GDP growth could hover between 6.1% and 8.1%, following a 9.2% average growth for the first three quarters of the year.
This would bring the full-year GDP growth to 8.5% to 9% for 2022.
“The continued contraction in the manufacturing purchasing managers’ index (PMI), weakening external demand and subsiding domestic consumption due to tighter financial conditions could exert downward pressure on manufacturing activity in 4Q22,” Kenanga Research said in its report yesterday.
It retained its 2022 manufacturing index growth forecast at 9.5% vis-a-vis 9.5% in 2021, while expecting 4Q22 GDP growth to settle at 6.6% on anticipation of weaker private consumption and slowing exports.
Similarly, AmBank Research expected the fragility in global demand to continue due to ongoing uncertainties and hence, continued moderation in input buying, stocks, and business confidence.
“We expect manufacturing will grow moderately in 4Q22. This would weigh on the overall economic performance during the quarter,” it said.
Data showed IPI growth in October moderated sharply to 4.6% from a growth of 10.8% in the preceding month.
The number also missed consensus expectations for a 7.7% growth.
The sharply slower IPI growth was due to softer mining and manufacturing production, as well as a contraction in electricity production.
The weak IPI performance was broad-based, led primarily by a growth slowdown in the manufacturing sector.
This was in line with Malaysia’s weak PMI reading of 48.7 in October, as compared with 49.1 in September, mainly due to subdued external demand.
Cumulatively, the IPI grew 7.5% y-o-y for the first 10 months of 2022.
TA Research trimmed its IPI growth projection for 2022 to 6.5% y-o-y from its earlier forecast of 7.3% y-o-y.
“We believe that growth will moderate slightly in the final quarter this year in conjunction with the diminishing base effect,” the brokerage explained in its report.
“Moreover, the performance of the manufacturing segment may also be hampered by the weak global demand following the contraction seen in the manufacturing PMI for three consecutive months,” it added.
TA Research said IPI growth could remain modest at least into the first half of next year, as a result of reduced demand from major trading partners.
Its cautious view took into account the impact of tightening financial conditions and the current reduction in global GDP.
Meanwhile, Hong Leong Investment Bank Research noted that the global manufacturing PMI had slipped further into contraction territory at 48.8 in November from 49.4 in October.
It added that the steeper decline was mainly due to weaker intakes of new business, deteriorating international trade flows and ebbing business optimism.
“In line with the bleaker global outlook, Malaysia’s industrial production is also expected to continue moderating moving into next year, clouded by the impact of rising uncertainties and cost pressures,” the research house said.