IPI growth quickened to +2.0% YoY in November (Oct: +0.3% YoY), beating the consensus estimate of +1.1% YoY. Growth was driven by broad-based pickup in manufacturing (+2.5% YoY; Oct: +2.2% YoY), mining (+0.5% YoY; Oct: -5.8% YoY) and electricity production (+1.6% YoY; Oct: +0.5% YoY). Notwithstanding the signs of cooling US-China trade tensions, business confidence is anticipated to remain moderate as negotiations over a phase 2 deal may lead to some negative speedbumps while 2/3 of Chinese goods remain taxed by the US. Hence, we maintain our expectation for Malaysia’s GDP to moderate to +4.4% YoY in 2020 (2019e: +4.5% YoY).

DATA HIGHLIGHTS

IPI growth picked up by +2.0% YoY in November (Oct: +0.3% YoY), beating the consensus estimate of +1.1% YoY. Growth was driven by broad-based increase in manufacturing (+2.5% YoY; Oct: +2.2% YoY), mining (+0.5% YoY; Oct: -5.8% YoY) and electricity production (+1.6% YoY; Oct: +0.5% YoY) (refer to Figure #1). Meanwhile, on a monthly basis, IPI growth fell back into contraction (-1.1%; Oct: +3.2%) amid decline in manufacturing (-2.7%; Oct: +1.9%), electricity (-2.8%; Oct: +0.9%) and slowdown in mining production (+4.9%; Oct: +8.8%).

Manufacturing production rose +2.5% YoY (Oct: +2.2% YoY), arising from higher gains in the domestic-oriented sector (+3.3% YoY; Oct: +2.5% YoY) while the export oriented sector steadied (+2.1% YoY; Oct: +2.1% YoY). In the domestic-oriented sector, production of food, beverages & tobacco (+2.2% YoY; Oct: +0.8% YoY) and non-metallic mineral & metal products (+3.7% YoY; Oct: +3.1% YoY) accelerated, while transport equipment growth remained uniform (+4.3% YoY; Oct: +4.3% YoY).

Meanwhile, steady growth in the export-oriented sector was supported by faster growth across production in ‘textiles, wearing apparel, leather products and footwear’ (+6.4% YoY; Oct: +5.4% YoY), ‘wood products, furniture, paper products, printing’ (+5.5% YoY; Oct: +4.6% YoY) and ‘petroleum, chemical, rubber and plastic products’ (+2.0% YoY; Oct: +1.0% YoY). This offset the moderation in and ‘electrical and electronics’ (+1.1% YoY; Oct: +2.4% YoY) due largely to a drop in manufacture of computers and peripheral equipment.

Production in the mining sector rebounded by +0.5% YoY in November (Oct: -5.8% YoY) on the back of a recovery in natural gas production (+3.7% YoY; Oct: -6.3% YoY) which offset the decline in crude petroleum production, albeit at a slower pace (- 3.3% YoY; Oct: -5.1% YoY). Meanwhile, on a monthly basis, both natural gas and crude petroleum production slowed to +7.5% (Oct: +8.5%) and +1.9% (Oct: +9.2%) respectively.

HLIB’s VIEW

In December 2019, Malaysia’s manufacturing PMI increased to its first expansion since September 2018 (Dec: 50.0; Nov: 49.5), driven by stronger momentum gains in output and new orders. While this suggests a brighter outlook for the local manufacturing sector going into 2020, we remain cautious on the sustainability of the uptrend post phase-1 trade agreement signing on 15th January 2020 amid continued imposition of tariffs on 2/3rd of Chinese goods by the US and possibility of phase 2 negotiation. Meanwhile, global manufacturing PMI slowed (50.1; Nov: 50.3) amid marginal growth in output and continued decline in new export orders, indicating continued weakness in international trade flows. Hence, we maintain our expectation for Malaysia’s GDP to moderate to +4.4% YoY in 2020 (2019e: +4.5% YoY).

Source: Hong Leong Investment Bank Research - 13 Jan 2020