The Industrial Production Index (IPI) slumped 32% y/y in April due to the impact of the movement control order (MCO) and global lockdowns amid the Covid-19 outbreak. This is the IPI’s lowest level since the data was reported in 1984. The two consecutive months of poor IP data that fell by 18.4% turned out to be worse than during the global financial crisis when the IP fell by an average of 0.7% (mid-2007 till early 2009).

The manufacturing sector came under heavy pressure during April as lockdown measures, both domestic and overseas, had a considerable impact on demand. Exacerbating the situation was the shrinking mining output where global fuel demand dropped about 30% even after major oil producers, led by Saudi Arabia, agreed to slash production by nearly 10 million barrels per day (bpd). Brent and WTI averaged US$18.47 and US$16.55 per barrel respectively in April from US$32.01 and US$29.21 in March respectively.

Moving forward, with the easing to the conditional MCO, and now recovery MCO, added with the lifting of global lockdowns, these should bode well for the domestic economy. Besides, with domestic recovery measures in place, more stable global oil prices with Brent and WTI averaging at US$29.60 and US$28.80 per barrel respectively in May, renewed buying of palm oil by India, an expected modest uptick from E&E, cheap borrowing cost and loan moratorium, all these should provide some positive catalysts to growth.

With signs of stabilisation in May emerging following the sharp rise of the manufacturing PMI to 45.6 despite remaining in the contraction region, from the record-low 31.3 in April, these suggest that 3Q2020 should yield a modest positive growth after a brutal 2Q. The possibility for the full-year growth to hover around -1.1% to -2.0% remains pending no nasty surprises. The downside to growth could reach -5.0%.

• The Industrial Production Index (IP) fell sharply in April, plunging 32% y/y from March’s -4.9% y/y. This is the worst reading since the data was reported in 1984. The drag in the IP came from all the sub-indices with manufacturing, mining and electricity shrinking by 37.2% y/y, 19.6% y/, and 19.2% y/y, respectively.

• The two consecutive months of poor IP data, which showed a contraction of 18.4%, turned out to be worse than during the global financial crisis (GFC) period. During this period, the IP only fell by an average of 0.7% (mid-2007 till early 2009). This recent data clearly showed the severity of Covid-19 on the economy following the MCO that came into force on 18 March to contain the virus spread.

Source: AmInvest Research - 12 Jun 2020