Bimb Research Highlights

Economics - Sustained positive growth in IPI

kltrader
Publish date: Mon, 15 Mar 2021, 05:36 PM
kltrader
0 20,601
Bimb Research Highlights
  • IPI grew 1.2% yoy in January
  • The growth of IPI continued supported by manufacturing outputs
  • Production of the mining and electricity sector shrank in January
  • Manufacturing sales increased 4.1% yoy; -1.4% mom in January
  • Productivity increased 6.7% yoy in January
  • Global semiconductor sales increase 13.2% yoy in January
  • Production to grow higher in 2H21

IPI grew 1.2% yoy in January

Malaysia's industrial production rose at a softer pace in January. The IPI continued to expand, rising by 1.2% yoy, after a 1.7% yoy rise in December 2020. This was the second straight month of increase in industrial output, as the economy recovered further from the coronavirus pandemic, with factories resuming their operations. The growth in production was mainly driven by a sustained production of manufacturing sector and a slower contraction in mining output. However, electricity production fell faster.

On monthly basis, the IPI in January increased marginally by 0.1%. Based on month on-month comparison, the growth in IPI for January was due to the increased sub indices of mining (1.7%) which offset the contraction in manufacturing (-0.2%) and electricity (-2.2%).

In a seasonally adjusted terms, IPI in January 2021 recorded a decrease of 0.3%. The deterioration was mainly due to the manufacturing index (-0.8%) and electricity index (-2.4%). Meanwhile, mining index recorded an increase of 2.0%.

IPI growth driven by sustained output in the manufacturing sector and a slower contraction in mining output

Malaysia’s IPI grew 1.2% yoy in January 2021, driven by sustained output in the manufacturing sector and a slower contraction in mining output. Electricity production, however, fell at a faster pace.

The manufacturing sector output grew by 3.5% yoy in January, slightly slower when compared to 4.1% expansion in December 2020. The export-oriented industries drove the growth of the manufacturing sector by 4.6% while domestic-oriented industries increased by 1.5%. The major sub-sectors contributing to the growth in manufacturing sector in January were electrical & electronics products (Jan’21: 7.9%; Dec’20: 7.6%; Nov: 8.3%; Oct: 8.1%; Sep: 9.8%; Aug: 6.9%), petroleum, chemical, rubber & plastic products (Jan’21: 4.5%; Dec’20: 7.7%; Nov: 2.0%; Oct: 1.7%; Sep: 3.2%, Aug: 1.7%), and wood products, furniture, paper products, printing (Jan’21: 2.4%; Dec: 3.3%; Nov: 2.2%; Oct: 1.5%; Sep: 2.3%).

The mining sector output decreased 4.5% yoy in January as compared to -5.4% declined in December. The deterioration was due to the decrease in crude oil & condensate index (Jan’21: -9.4%; Dec’20: -9.0%; Nov: -17.4%; Oct: -12.5%; Sep: -10.4%; Aug: -6.4%) and natural gas index (Jan’21: -0.5%; Dec’20: -2.5%; Nov: -15.6%; Oct: -10.2%; Sep: -10.1%; Aug: -9.6%)

The electricity sector output edged down by 4.6% in January 2021, after a contraction 0.2% in the prior month.

Manufacturing sales recorded slower growth in January

Malaysia’s manufacturing sales were higher by 4.1% yoy to RM122.9bn in January 2021 as compared to RM118.0bn reported a year ago. On month-on-month growth, the sales value went down by 1.4% (RM1.7bn) while in a seasonally adjusted terms, the sales value increased marginally by 0.01%.

The year-on-year increase in January 2021 was driven by food, beverages & tobacco products (Jan’21: 7.7%; Dec’20: 7.9%; Nov: 5.1%; Oct: 13.8%; Sep: 14.2%; Aug: +12.8%), electrical & electronics products (Jan’21: 6.4%; Dec’20: 4.2%; Nov: 5.3%; Oct: 3.8%; Sep: 7.2%; Aug: +7.1%), and transport equipment & other manufactures products (Jan’21: 5.5%; Dec’20: 20.5%; Nov: 10.5%; Oct: 9.3%; Sep: 14.3%; Aug: +16.2%).

However, despite higher sales, employment in the manufacturing sector continued to decline with total employees engaged in the manufacturing sector in January was 2,225,697 persons, a decrease of 2.4% as compared to 2,280,951 persons in January 2020. On monthly basis, the number of employees increased by 1.2% as compared to 2,199,195 persons registered in the preceding month.

Salaries & wages paid amounted to RM7.56bn, contracted by 1.4% yoy or RM105.6m in January. Meanwhile, salaries & wages paid in January fell 2.4% mom (RM185.7m). The average salaries & wages paid per employee in January was RM3,396, increased by 1.1% yoy and down 3.6% mom.

Productivity or sales value per employee in January increased by 6.7% yoy to register RM55,213. Meanwhile, on month-on-month basis, the average sales value per employee decreased 2.5%.

Global semiconductor sales increase 13.2% yoy in January

According to data from the Semiconductor Industry Association (SIA), worldwide sales of semiconductors were USD40.0bn for the month of January 2021, an increase of 13.2% over the January 2020 total of USD35.3bn and 1.0% more than the December 2020 total of USD39.6bn.

On a regional basis, year-to-year sales increased across all markets: Asia Pacific/All Other (16.0%), the Americas (15.4%), China (12.4%), Japan (9.6%), and Europe (6.4%). Month-tomonth sales increased in China (3.4%), Europe (2.0% percent), and Asia Pacific/All Other (1.5%), but were down in Japan (-1.0%) and the Americas (-3.0%). Overall, global semiconductor sales got off to a strong start in 2021, increasing both year-toyear and month-to-month in January. Global semiconductor production is on the rise to meet increasing demand and ease the ongoing chip shortage affecting the auto sector and others. To meet increased demand during the current global chip shortage, the semiconductor industry is substantially increasing its fab capacity utilization. The semiconductor market overall is not that negatively impacted by the COVID-19 pandemic and for 2021, the global semiconductor market is projected to grow by 8.4% yoy (2020: 6.8% yoy).

Global industrial production showed some moderation in January

Singapore factory output rose 8.6% yoy (+4.6% mom sa) in January, the third straight month of increase in industrial production as the economy recovered further from the COVID-19 crisis. Excluding biomedical manufacturing, industrial production rose 12.1% yoy. December’s industrial production has been upgraded to +16.2% yoy (+1.4% mom sa), up from the previous print of +14.3% yoy (+2.4% mom sa). Growth was mainly supported by the surge in electronics, chemicals and precision engineering production whilst low base levels especially seen in electronics and chemicals may have lent further strength to January 2021’s growth prints. Encouragingly, general manufacturing expanded for the second straight reading. Industrial production in Thailand declined by 2.8% yoy in January, after a revised 2.8% fall in December, amid prolonged impact of COVID-19 disruptions. Meanwhile, Thailand's manufacturing production index (MPI) in January rose by 6.03% amid the new COVID-19 outbreak as officials expect better economic prospects in the months ahead following the recent delivery of vaccines. The manufacturing capacity utilisation rate in January increased to 66.4%, the highest in 10 months after a drop from 67.7% in March last year. Manufacturing production in the Philippines tumbled 21.1% yoy in January, after revised 15.4% drop in December. This was the eleventh straight month of drop in manufacturing output, amid disruptions caused by COVID-19 pandemic.

American industry expanded for the fourth consecutive month in January but has yet to recover fully to the level of activity that preceded the pandemic. US industrial production, which includes output factories, mines and utilities, rose 0.9% mom in January. That followed increases of 1.3% in December, 0.9% in November and 1.1% in October. While the January activity was greater than projected, it was 1.8% below production in January 2020, reflecting lingering economic damage from the coronavirus pandemic. It follows a 3.2% yoy drop in the previous month. Still, it is the smallest decrease in a year. Manufacturing rose 1% even though production of autos and auto parts (down 0.7%) was constrained by a shortage of semiconductors used in vehicles. Mining jumped 2.3% on a burst of oil and gas drilling, up for five straight months and 11.3% in January alone. An unusually warm January caused utility output to fall 1.2% in January. Eurozone industrial production grew more than expected in January. Industrial production grew 0.8% mom, reversing a slight 0.1% drop in December. On a yearly basis, industrial output gained 0.1%, ending a 26-month period of contraction. All production categories except for non-durable consumer goods are back above January levels again. Production of intermediate goods rose by 1.8% yoy, durable consumer goods by 1.6% yoy, capital goods by 0.9% yoy and energy by 0.4% yoy, while production of non-durable consumer goods fell by 3.9% yoy. Japan’s industrial output rose for the first time in three months in January thanks to a pickup in global demand, in a welcome sign for an economy still looking to shake off the drag of the coronavirus pandemic. Industrial output jumped 4.2% mom, following a 1.0% mom, boosted by sharp rises in production of electronic parts and general-purpose machinery, as well as a smaller increase in car output. It was the first increase in three months and the highest reading since July of 2020. However, on yearly basis, industrial production declined 5.3% yoy in January, compared to a 2.6% decrease in December.

Production to grow higher in 2H21

January IPI registered +1.2% yoy, driven by higher activities in the manufacturing segment while the country’s mining and electricity output dropped. The manufacturing production printed a softer growth of +3.5% yoy versus +4.1% in December led by both domestic and export-oriented sectors despite domestic movement control orders to contain the spread of COVID-19. Sales of manufacturing products continued to grow although expanding at a slightly slower pace of 4.1% yoy from 4.5% in December.

The rise in COVID-19 cases heading into January led to the imposition of the second MCO where businesses are allowed to operate but with stringent procedures. There have been several outbreaks of infections among foreign workers due to workplace clusters.

Growth in industrial production and exports, which rose 6.6% yoy in January following a 10.8% rise in December, showed that the impact from MCO 2.0 was minimal. However, as Malaysia’s manufacturing PMI in February continue to dip (Feb: 47.7; Jan: 48.9), we could expect the slowdown in industrial production to continue. The PMI report stated that businesses continued to scale back production, while incoming orders also moderated whilst clusters found in the workplace could have hurt production activity further.

In the upcoming month, the ease of MCO 2.0 restrictions recently is expected to improve the demand for domestic goods and lead to some partial recovery. However, growth in the export-oriented industries is likely to moderate temporarily, amid the slowdown in global supply chain following acute shortage of semiconductors. The shortage may cause dismal performance in the external trade where the E&E constitutes 40.9% of the country’s total export. Despite the shortage, we expect the issue to be temporary as robust demand for intermediary goods will motivate the producers ramp up production. However, it may take a few months to increase the utilization rate and set up the new lines before can meet the orders.

The outlook remains strong for the months ahead. Overall, we anticipate the vaccination in the major economies may boost the business outlook and external demand as the daily COVID-19 cases started to fall. Businesses continue to remain positive about the inflow in their order books and for production in the months ahead in general. While input problems like chip shortages and higher container prices may dampen output a bit, we do not expect this to throw the production expansion off course significantly. We therefore expect industrial production to continue to provide an important counterweight to the services sector, which is still suffering from restrictive measures to curb the spread of the coronavirus. While we do expect GDP to contract in 1Q, manufacturing strength will likely soften the blow. We are maintaining our projection for the IPI to grow by 5.8% supported by the recovering demand both from domestic and external markets.

Source: BIMB Securities Research - 15 Mar 2021

Discussions
Be the first to like this. Showing 0 of 0 comments

Post a Comment