After recording two months of decline, Malaysia’s industrial production index (IPI) managed to log a growth of 2.5% y/y for the month of September, the highest since May 2021.

With improved Covid pandemic management, healthy external growth, and surging commodity prices, we expect the contraction of 3Q21 GDP would be around 1.5% from our previous estimate of -2.4%. And with better performance expected in 4Q21, supported by the reopening of the borders, the overall economy could now reach 4.0% for the full year driven by an improvement of 4QGDP estimated at 1.9%.

A. Highlights

• For the month of September, the IP is back on the growth zone at 2.5% y/y compared to 0.7% and 5.0% contraction in August and July, respectively. It marked the first growth since June 2021.

• The upside pressure came from manufacturing sector as it grew by 4.0% y/y, up from 0.6% y/y. Looking at the sub-sector, the growth was championed by electrical & electronic products (E&E) with 12.3% advance (Aug: 9.7%) and petroleum, chemical, rubber & plastic products with 6.1% climb (Aug: 14%). Also, electricity contributed to the main index’s growth with 0.4% advances.

• However, the improvement was limited by the declining mining sector. Data showed the sector contracted by 3.0% y/y albeit the pace is better than the previous months -4.2% reading.

• The severity of MCO3.0 can be seen from the constrained domestic-based industries as it remained on the losing side (- 1.9% y/y), especially for the manufacture of motor vehicles, trailers & semi-trailers (-17.4%), non-metallic mineral products (-10.1%) and tobacco products (-49.4%).

• Meanwhile, the export-based industries grew healthily by 6.7% y/y, induced by the growth of manufacture of computer, electrical & optic products (12.6%), coke & refined petroleum products (9.3%), and chemicals & chemical products (7.0%).

B. Key Takeaways

• With improved Covid pandemic management, health external growth and surging commodity prices, we expect the contraction of 3Q21 GDP would be around 1.5% from out previous estimate of -2.4%.

• And with better performance expected in 4Q21, supported by the reopening of the borders, overall economy could now reach 4.0% for the full year driven by an improvement of 4QGDP estimated at 1.9%.

Source: AmInvest Research - 10 Nov 2021