• IPI that advanced by 4.1% YoY in May, could have been much higher

• The expansion was supported by manufacturing and electricity components

• Mining was a drag

• Favourable outlook especially for manufacturing and mining

OVERVIEW

The Industrial Production Index (IPI) was resilient in May thanks to full economic openings and a revival in global industrial activity that pushed activity. Growth for the month was even more impressive following a strong jump in output last year (IPI May 2021: +25.8%). Favourable operating conditions underpinned the turnaround in IPI components especially manufacturing which produced its 10th straight month of expansion (May: +6.9%). The index was further lifted by the rebound in the electricity component (May: +2.8%), the subindex’s nine successive months of expansion. This was dampened however by the drop in mining component (May: -4.9%), no thanks to base effect disadvantage amid output that was pulled down especially by crude petroleum and condensates, the sub-index’s eleventh continuous month of decline. Encouraging output pushed IPI to expand by 4.1% YoY in May, a slight moderation however against +4.6% in April. On a MoM and seasonally-adjusted basis, IPI ticked 2.9% slower, a deterioration against April (+0.03%).

Manufacturing output expanded at a faster clip this month (May: +6.9%) thanks to full global economic openings though it could have been much higher if not for persistent global supply chain disruption. The month’s steady form is consistent with solid manufacturing exports (May: +30.5% YoY), an encouraging form which indicates a steady turnaround post COVID-19. The encouraging manufacturing performance is also consistent with Manufacturing PMI momentum which remained in expansionary mode in May (50.1). Improving operating landscape may push manufacturing companies to ramp-up output especially when the festive season is fast approaching (4Q22: Christmas). The sector’s output will also be driven by backlogs, pent-up demand and re-stocking activities, indicating a favourable prospect for sector. We foresee pockets of outbreaks, labour shortage and supply chain disruptions as the only drag for the sector. On a MoM and SA adjusted basis, manufacturing output decreased by 2.5%, a pullback against -0.3% in April.

On specifics, manufacturing IP that increased by 6.9% YoY in May (April: +6.2%) remained driven by industrial products (for export) especially non- metallic minerals products, basic metal and fabricated metals products (May: +5.2%) thanks to full economic openings in key regions (i.e., ASEAN, North America, Europe). The sector’s performance was further pushed by a strong turnaround in E&E (May: +15.5%), the sub-index’s steady expansion since August. Consumer-related products recovered further thanks to full economic openings, a boon for sub-sectors especially food, beverages and tobacco (May: +4.7%) and textiles, wearing apparel, leather products and footwear (May: +5.0%).

Source: BIMB Securities Research - 11 Jul 2022