Malaysia's industrial production index growth to stay firm: HLIB

KUALA LUMPUR: The Malaysian industrial production index (IPI) is expected to continue growing steadily, driven by domestic and external demand, especially for electrical and electronics goods, according to Hong Leong Investment Bank Bhd (HLIB). Global manufacturing activity remains in an expansionary phase, with a slight decrease in July's purchasing manager's index to 52.1.

Despite this, production levels, new orders, and purchase orders are still on the rise, albeit at a slower pace, and employment is showing a resurgence. However, business confidence remains low. HLIB holds the view that Bank Negara Malaysia should keep the overnight policy rate at 2.75% for the second half of the year.

The IPI growth slowed to 6.5% year-on-year (YoY) in June, below the median forecast of 7.2%. This deceleration was mainly due to a significant drop in mining production, which outweighed stronger performance in manufacturing and electricity production. On a month-to-month basis, the IPI declined by 0.5%, with mining production contracting and manufacturing and electricity sectors rebounding.

In June, the manufacturing sector expanded by 7.3% YoY, buoyed by a surge in domestically-focused industries. Meanwhile, the export-oriented segment saw a slight slowdown, contracting to 8.3% YoY. The E&E subsector still posted double-digit growth, though at a slower rate of 13.6%. However, mining production slowed sharply to 3.1% due to reduced natural gas production and a steeper decline in crude petroleum extraction.