The Industrial Production Index (IPI) growth has slowed during the month of May as it recorded a smaller increase of 26.0% y/y (cons. 24.6%), from a 50.1% y/y rise in the previous month.

The performance of the retail & wholesale sectors also showed a similar trend, improving by 28.3% y/y in May 2021, down from a 66.2% growth in April 2021.

Although both performances in May were still robust, these would soften in June due to the latest lockdown to curb rising Covid-19 cases. Also, the low base is dissipating. We expect GDP for 2021 to hover around 4%– 4.5%.

A. Highlights

• Looking at monthly changes, the IPI fell slightly by 0.3% to 114.5 in June compared to 114.8 in the month before, recording two consecutive months of contraction.
• The growth was supported by an expansion in all indices with manufacturing expanding 29.8% y/y (April +68.0% y/y), mining up by 20.7% y/y (April +14.3% y/y) and electricity +7.9% y/y (April +23.6%y/y).
• Drilling down the data, domestic-oriented industry grew by 41.1% y/y (+110.9% y/y in April) while the export-oriented sector swelled by 25.3% y/y (+52.8% y/y in April).
• Similarly, the total distributive sales value marginally slipped by 2.5%m/m to RM108.3bil from RM111.1bil in April 2021.
• Breaking it down, retail trade reading in May recorded a 17.3% y/y increase (+56.4% y/y in April), wholesale trade expanded 31.2% y/y (+40.5% y/y in April) while motor vehicles surged 71.1% y/y (+1,551% y/y in April).

B. Key Takeaways

• The continued robust growth in both indicators were due to a low base during the first pandemic year and some flexibilities imposed during MCO 3.0 in May 2021.
• The MCO was reinstated in major states in May 2021 due to surging Covid-19 cases. Social activities and interstate travel were banned, while employers were told to switch to work-from-home arrangement wherever possible.
• Despite that, essentials and certain industries were still allowed to continue their operations as usual. This intended leeway had cushioned the economic activity from being further dampened by pandemic restrictions.
• On another note, economic growth in June is expected to be soft with downside risk still remaining due to the imposition of the EMCO. For the full year of 2021, we expect growth to be around 4.0%–4.5%. The deviation from our target hinges on the pandemic management and vaccination rate.

Source: AmInvest Research - 13 Jul 2021