Industrial production (IP) fell by double digits for the second straight month in May, dropping by 22.1% y/y due to the decrease in all three components of the index. Likewise, distributive sales fell 23.8% y/y, dragged by both retail and wholesale sales, which slipped by 16.2% y/y and 23.6% y/y respectively.

Despite the double-digit contractions, more importantly the drop is seen softening as a result of the growing relaxation of the movement control order (MCO) domestically and lockdowns in many countries. It should potentially provide a positive impetus to economic growth.

Assuming there is no second wave of the virus infections, the economy should start to improve in 2H2020 at a modest pace. On that note, our base case growth for 2020 is around -2% with the downside at -5%. Still, the economic growth in 2Q2020 is expected to report the worst contraction after a 0.7% growth in 1Q2020 where our preliminary estimation suggests a contraction of between 10% and 13%.

• Industrial Production (IP) fell by double digits for the second straight month. The IP in May contracted by 22.1% y/y from - 32%y/y in April due to the decrease in all three components of the index. Manufacturing dropped by 23.2%% while the mining and electricity segments declined 22.2% and 10.3% respectively.

• The drag in manufacturing activities in May 2020 came from non-metallic mineral products, basic metal and fabricated metal products, which tumbled by 45.1%. Besides, lacklustre activities were seen from transport equipment and other manufactures (-38.5%) and also petroleum, chemical, rubber and plastic products (-24.3%).

• The output in the mining sector shrank 22.2% in May 2020 from -19.6% in April. The deterioration was due to the decrease in crude oil and condensate index at 22.2% from -20.2% in April.

• With the contraction of IP gradually easing although still at double digits as a result of the growing relaxation of the MCO and lockdowns in many countries, it should potentially provide a positive impetus to the economic growth.

• This is further supported by a narrower fall in distributive sales. In May, although distributive sales still recorded -23.8% y/y, it had eased compared to April’s -36.6% y/y. Both retail and wholesale sales dwindled by 16.2% y/y and 23.6% y/y respectively from -26.3% y/y and -32.4% y/y in April as demand from household resumed.

Source: AmInvest Research - 10 Jul 2020