Malaysia: Moderate IPI growth likely to persist, say experts

PETALING JAYA: Economists expect the moderating growth in the Industrial Production Index (IPI) to persist in the quarters ahead.

Malaysia University of Science and Technology economics professor Geoffrey Williams said slowdown could be seen in export-oriented products while growth for domestic oriented production had slowed but it is not contractionary.

“The slowdown in export-oriented products reflects increasingly difficult global conditions as well as the expectations that the decline will continue for the rest of the year.

“Going forward, the country’s focus will be more on the domestic economy and maintaining growth,” he told StarBiz.

According to the Statistics Department, the IPI growth moderated to 1.8% in January 2023 against 2.9% in December 2022.

It attributed slower growth in manufacturing output as the main reason for the drop.

The production of domestic-oriented industries grew by 2.7% in January 2023 from 3.8% in December 2022, which was mainly driven by the manufacture of motor vehicles, trailers and semi-trailers that increased by 12.2% in January 2023.

Universiti Tunku Abdul Rahman economics professor Wong Chin Yoong said the slowdown in the manufacturing sector would likely persist throughout the year on the back of interest rate hikes by the US Federal Reserve (Fed), US-China tech war, and Russia-Ukraine conflict.

“The Fed may undertake another three or four rounds of interest rate hikes which stand to hurt the tech and manufacturing sector. The growth for the manufacturing sector will also be affected as long as the decoupling goes on between the United States and China,” he said. Wong added the manufacturing sector is poised to have positive growth should the US and China not go into a recession. He however noted China’s rebound post its zero-Covid policy had not matched expectations.

“The United States needs to resolve the Silicon Valley Bank (SVB) collapse for the resumption of the financial institution’s lending to tech startups. If the matter is resolved promptly, then the impact on the real economy should be mitigated. This will also be a catalyst for the Fed to stick to a 25 basis point hike in interest rates,” he said.

Williams added the SVB event would have little impact on Malaysia while the reopening of China is a net positive for the country even if the Chinese economy’s growth is at 5%.

“The SVB collapse is due to bad management at that bank. There are signs that other US banks and financial institutions are also badly managed and this is a concern if there is a contagion effect in their system,” he said.

Source: https://www.thestar.com.my/business/business-news/2023/03/14/moderate-ipi-growth-likely-to-persist-say-experts