Both Malaysia’s Industrial Production Index (IPI) and distributive trade reading showed a somewhat healthy yearly increase for the month of February 2022 albeit slower growth due to the seasonality factor. Moving forward, we project the local economy to grow by 5.6% on a base case scenario with the downside of 4.8%, supported by firm commodity prices, strong inflow of FDI and the full reopening of economies.

Highlights

• The Malaysia’s IPI reading posted a slower growth of 3.9% y/y for the month of February 2022, a slightly weaker pace compared to 4.3% in the previous month and missing Bloomberg’s forecast of 4.0%.

• Its components also saw healthy growth; manufacturing rose 5.2% y/y (January: 6.8%), electricity expanded 3.9% y/y (January 2022: 7.7%), while the mining component contracted 0.4% y/y (January 2022: -5.1%).

• On a monthly basis, the main index advanced 5.2% y/y (January 2022: -1.4%), manufacturing gained 4.0% y/y (January 2022: -1.8%), electricity grew 2.8% y/y (January 2022: -0.02%), and mining rose 8.6% y/y (January 2022: 1.4%).

• The strong manufacturing performance was mainly due to the increase of electrical & electronic products of 12.8% y/y, transport equipment & others at 8.4% y/y growth, and food, beverages, & tobacco products with a 6.6% y/y growth rate.

• The domestic-oriented manufacturing sector index, which climbed 6.2% y/y, benefitted from the upswing in motor vehicles, trailers & semi-trailers (9.9%), food products (5.4%), and fabricated metal products except machinery & equipment. Meanwhile, the export-oriented sub-sector grew by 4.7% and was supported by computer, electronics & optical (14.3%), vegetable and animal oils & fats (7.6%) and chemicals (4.6%).

• Distributive trade sales also expanded healthily with the total retail sales value jumping 10.2% y/y, the fastest pace since May last year while the wholesale rose jumped 6.2% y/y and motor vehicles surged 12.5% y/y.

Key Takeaways

• Global demand towards Malaysia’s products remained strong as shown by the growth in the export-oriented index. Growth in the manufacturing sector is expected to be the driver, with demand for electrical & electronic products, chemicals are expected to stay robust.

• Growth in the mining sector is expected to recover, as major oil refineries have been reopened after a year-long maintenance last year.

• With Malaysia already shifting towards the endemic phase starting 1 April 2022, we expect the benefits to continue spurring Malaysia’s domestic growth.

• With greater positive impact on the economy plus contributions from FDI inflows (as much as RM179bil of approved investments in 2021) in the form of expansion and new investments and firm commodity prices, the outlook for 2022 GDP is projected at 5.6% with an upside of 6.0%.

• However, downside risks remained with much of the factors stemming from the external environment such as the high input prices induced by the Ukraine-Russia tension which could hinder new orders, and China’s persistence in implementing the zero-Covid policy which could exacerbate the ongoing global supply chain disruptions with reports of prolonged shipments and material shortages.

• We are also on the lookout for the headwinds such as the emergence of new variants, local’s policy confusion, slow implementation and political noises which could weigh on growth. On the downside, the local economy is projected at 4.8%.

• Our in-house growth projection is suggesting that the local economy grew by 0.7% in February and 1.1% in January 2022 and on average, the growth for these two months posted was at 0.9%.

Source: AmInvest Research - 12 Apr 2022