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Manufacturing Impact

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What is Industrial Production Index (IPI)?

Industrial Production Index (IPI) measures the real output of the three main industrial sectors in Malaysia: mining, manufacturing, and electricity. It serves as a key indicator of industrial activity and economic performance.

For this analysis, we focus on how Malaysia's diesel subsidy policy affects the manufacturing sector, which contributes approximately 23% to the country's GDP and employs over 2.2 million workers.

Overall Manufacturing Performance Trend Impact on Fuel-Sensitive Manufacturing Sectors Diesel Price Impact Analysis

Overall Manufacturing Performance Trend

The chart below shows Malaysia's manufacturing performance from 2023 to early 2025, highlighting the periods before and after major diesel subsidy policy implementations. The absolute index values (2015=100) illustrate the sector's overall performance trajectory.

How the Diesel Subsidy Reform Affects Manufacturing

  • Higher Costs: Diesel prices went up, making production and transport more expensive
  • SMEs Hit Harder: Small and medium factories feel the impact more than large ones
  • Slower Output in Late 2024: Short-term boost after policy,followed by a mild decline
  • Push for Modernization: Encourages cleaner, more fuel-efficient technology
  • Ripple Effects on Jobs & Prices: Higher costs may affect employment and product prices
  • Goal of the Policy: Target subsidies to those who need them, improve long-term efficiency
Data Source: Department of Statistics Malaysia (DOSM), 2024
URL: https://open.dosm.gov.my/data-catalogue/ipi_1d
Methodology: Monthly Manufacturing Index (IPI) and Seasonally Adjusted values were obtained from official national statistics, categorized under Section C (Manufacturing) and indexed to base year 2015 = 100.

Impact on Fuel-Sensitive Manufacturing Sectors

This analysis visualizes the impact of Malaysia’s diesel subsidy reform on fuel-sensitive manufacturing divisions. It helps identify which sectors are most vulnerable to rising diesel prices by combining industrial production data with fuel price trends.

Manufacturing Sector Year-on-year Growth(%) Sensitivity score
Non-metallic Mineral Products 2.3 147.9
Wearing Apparel 5.1 138.82
Paper and Paper Products 1.2 91.56
Fabricated Metal Products (excl. Machinery) 6.4 84.04
Machinery Repair and Installation 7.9 64.52
Chemicals and Chemical Products 5.7 58.06
Other Transport Equipment -2 54.81
Coke and Refined Petroleum Products -0.8 53.52
Rubber and Plastics Products 4.7 21.87
Computer, Electronic, and Optical Products 8.4 15.09

Methodology Overview:

  • Fuel Sensitivity Score: The fuel sensitivity score is calculated to assess how much a manufacturing sector's output responds to diesel price changes. First, for each month in 2024, the average difference in industrial production growth (IPI growth) between the before and after policy periods is computed for each industry. Then, this growth difference is divided by the percentage change in diesel prices for the same month. This gives a monthly “sensitivity contribution.” Finally, these monthly values are averaged across the year to produce the sector’s fuel sensitivity score — a higher score indicates a stronger response of output to diesel price fluctuations.
  • Impact Ranking: The divisions shown here represent the top 10 fuel-sensitive sectors based on their calculated sensitivity scores.

Why These Sectors Are More Affected

The sectors most impacted by the diesel subsidy policy changes share key characteristics:

  • High energy intensity: Industries like Fabricated Metal Products and Chemicals and Chemical Products require large amounts of fuel for manufacturing processes.
  • Dependence on diesel-powered machinery: Sectors such as Machinery Repair and Installation rely directly on diesel for operational equipment.
  • Reliance on road transport: Industries like Wearing Apparel and Rubber and Plastics Products depend on logistics networks powered by diesel for raw materials and product delivery.
  • Fuel-sensitive supply chains: Sectors such as Computer, Electronic, and Optical Products are part of global supply chains where fuel costs can significantly impact competitiveness.
  • Limited alternatives to diesel: For sectors like Coke and Refined Petroleum Products, diesel is not just a cost but also a core input, leaving little flexibility in adapting to price shocks.
Source: Department of Statistics Malaysia, IPI by Division (2 digit) Data, Feb 2025

Diesel Price Impact Analysis

This chart shows the monthly Manufacturing Production Index (blue line, base year 2015=100) and average diesel price (orange line, RM/L) from January to December 2024. The IPI reflects actual manufacturing output, while diesel prices capture fuel cost changes across the same period.

What Citizens Should Know:

  • Output Stayed Strong Despite Higher Diesel Prices: Even after diesel prices rose in June, the manufacturing sector continued expanding through August — showing short-term resilience and possible preparation ahead of the reform.
  • Slowdown in Late 2024: After peaking in August, the manufacturing index declined moderately from September to December. This suggests that higher fuel costs may have gradually impacted industrial output, particularly for fuel-intensive sectors.
  • Why Diesel Prices Matter: Diesel is widely used in transportation, logistics, and factory operations. A rise in diesel prices typically increases production costs, which may later affect consumer prices, job stability, or SME performance.
  • Big vs Small Businesses: Large manufacturers may absorb cost increases better, while small and medium enterprises (SMEs) could feel the squeeze first — possibly leading to slower growth or reduced activity in some sectors.
  • Policy Effects Take Time: The data suggests that policy changes don’t cause immediate disruption, but effects can build up over time — making it important to monitor both production trends and price movements together.
Data Source: Department of Statistics Malaysia (DOSM), 2024
Dataset: IPI by Division (2-digit)
URL: https://open.dosm.gov.my/data-catalogue/ipi_2d
Methodology: Monthly manufacturing index (absolute values) from January to December 2024, categorized under Section C (Manufacturing), base year 2015 = 100.
Data Source: Official Fuel Prices – Government of Malaysia
Dataset: Price of Petroleum & Diesel (CSV)
URL: https://data.gov.my/data-catalogue/fuelprice
Methodology: Monthly average diesel prices collected for 2024, based on official level pricing records.