KUALA LUMPUR: MIDF Research has reaffirmed its forecast that the Industrial Production Index (IPI) will grow more robustly this year to 4.2 per cent from 0.7 per cent in 2023.
The firm expects heightened external demand to enhance the production of various export products such as natural gas and electrical and electronics (E&E) components.
"Production of domestic-oriented products will also increase given the continued rise in domestic spending.
"However, we are monitoring closely any possible downside risks from the government's policy changes that could lead to higher inflation outlook and could negatively hurt consumer sentiment, their purchasing power and future spending plans," it added.
MIDF Research said significant reduction in final demand as a result of the high borrowing costs is another risk that could cause weaker trade and production outlook.
Malaysia's IPO growth eased to 2.4 per cent year-on-year (yoy) in May 2024 compared to April 2024 at 6.1 per cent yoy.
The firm said it is still on expansionary since rebounding in the final quarter of last year.
"The moderation in the pace of growth in May was steeper than markets and our expectations, given the higher base in May last year.
"By major sector, mining production declined by -6.9 per cent yoy due to weaker crude petroleum at -1.9 per cent yoy and natural gas at -10.3 per cent yoy output," it added.
Meanwhile, MIDF Research noted that the manufacturing output growth remained steady at 4.6 per cent yoy, marking the sixth consecutive month of growth.
This was supported by strong outputs in motor vehicles and computers and peripheral equipment, along with a rebound in the production of E&E products.
"The continued expansion in IPI suggests momentum in the economy remained positive in the first 5 months with average IPI growth in the first five months of the calendar year 2024 relatively stronger at 3.6 per cent yoy compared to 1.9 per cent yoy in the first five months of the calendar year 2023," it said.