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KUALA LUMPUR: The domestic manufacturing output is expected to be particularly weak in the first quarter (Q1) of 2023 due to poor external demand and tepid global economic conditions.

However, there is potential for exports to recover in the short term following the end of major festive periods, especially in China.

Kenanga Investment Bank Bhd, in a note, said manufacturing growth should be supported by robust domestic demand spurred by an expected increase in tourist arrivals.

The research firm noted that Malaysia's manufacturing purchasing managers' index (PMI) showed a slight improvement in February at 48.4 from 46.5 in January, indicating a fledgling recovery in output despite remaining in the contractionary zone.

Malaysia's industrial production index (IPI) growth eased to a 17-month low in January at 1.8 per cent year-on-year (YoY) from 2.8 per cent posted in December 2022, registering above house forecast of 1.5 per cent but below market estimates at 2.6 per cent.

The moderation was driven by a slowdown in the manufacturing index and a deeper contraction in the electricity index, which outweighed a greater expansion in mining output.

In detail, electrical and electronic products dipped to 0.4 per cent in January from 7.2 per cent in December 2022, its lowest level since July 2021, which outweighed a return to growth for petroleum, chemical, rubber and plastic products (2.0 per cent from -0.9 per cent in December last year, reaching a 3-month high.

Mining index growth expanded to a 2-month high of 5.9 per cent YoY in January from 3.9 per cent posted in December last year.

The expansion was led by greater growth in the extraction of crude oil and natural gas at 5.9 per cent from 3.9 per cent in December last year, followed by better crude petroleum output of 8.0 per cent from December reading of 4.2 per cent and improved natural gas production of 4.5 per cent from 3.7 per cent in December 2022.

Kenanga also noted that the electricity index contraction worsened in January at 4.3 per cent YoY from 2.2 per cent posted in December 2022, falling to a 17-month low.

"We recently raised our 2023 gross domestic product (GDP) forecast to 4.7 per cent from 4.3 per cent due to expectations of robust domestic demand, continued fiscal support, and tailwinds from China's reopening.

"However, Q1 2023 growth may slow due to fragile global economic conditions and weaker external demand.

"Downside risks to overall growth remain from the Russia-Ukraine conflict, tenuous Sino-American relations, and possible recessions among major economies," Kenanga said.

Source: https://www.nst.com.my/business/2023/03/889002/malaysias-industrial-production-expansion-moderated-january-due-weak