IPI growth quickened to +5.8% YoY in Feb (Jan: +0.6% YoY), beating the consensus estimate of +0.9% YoY. Stronger growth was seen across manufacturing (+5.6% YoY; Jan: +2.2% YoY), mining (+6.1% YoY; Jan: -3.9% YoY) and electricity production (+6.8% YoY; Jan: -0.01% YoY), driven partly by base effect. Going forward, we opine that economic data will be negatively affected due to the global spread of Covid-19 and domestic Movement Control Order that began on 18 Mar 2020. We maintain our expectation for Malaysia’s GDP to weaken to -4.0% YoY in 2020 (2019: +4.3% YoY).

DATA HIGHLIGHTS

IPI growth quickened to +5.8% YoY in Feb (Jan: +0.6% YoY), far exceeding the consensus estimate of +0.9% YoY. Stronger growth was seen across manufacturing (+5.6% YoY; Jan: +2.2% YoY), mining (+6.1% YoY; Jan: -3.9% YoY) and electricity production (+6.8% YoY; Jan: -0.01% YoY) (refer to Figure #1) due to base effect. On a monthly basis, production fell across the board. Manufacturing fell -7.1% (Jan: +0.4%). Mining also fell -7.5% (Jan: +0.8%) while electricity production fell -4.5% (Jan: +2.4%).

Manufacturing production accelerated to +5.6% YoY (Jan: +0.6% YoY), driven by both export and demand-oriented sectors. The demand-oriented sector rebounded (+5.3% YoY; Jan: -0.2% YoY) on the back of recovery in food, beverages & tobacco (+4.5% YoY; Jan: -5.5% YoY) as well as stronger growth in transport equipment (+4.9% YoY; Jan: +1.4% YoY) and non-metallic mineral & metal products (+6.2% YoY; Jan: +3.9% YoY).

Export-oriented sector growth quickened to +5.8% YoY (Jan: +3.4% YoY) amid broad based acceleration in production of ‘electrical and electronics’ (+5.1% YoY; Jan: +3.2% YoY), ‘petroleum, chemical, rubber and plastic products’ (+6.3% YoY; Jan: +3.6% YoY), ‘wood products, furniture, paper products, printing’ (+6.3% YoY; Jan: +3.0% YoY) and ‘textiles, wearing apparel, leather products and footwear’ (+6.7% YoY; Jan: +3.2% YoY).

Mining production recorded a strong rebound (+6.1% YoY; Jan: -3.9% YoY), mainly due to strong turnaround in natural gas production (+12.0% YoY; Jan: -2.3% YoY) and smaller decline in crude petroleum production (-0.5% YoY; Jan: -5.9% YoY). Meanwhile, on a monthly basis, natural gas production extended its losses (-6.0%; Jan: -0.5%) while crude petroleum production sank -9.3% (Jan: +2.3%).

HLIB’s VIEW

The pickup in manufacturing production was reflected in stronger manufacturing sales during the month (+7.0% YoY; Jan: +2.4% YoY) amid increase in employees engaged (+1.6% YoY; Jan: +1.4% YoY) and wages paid (+4.4% YoY; Jan: +4.1% YoY). Despite the positive growth seen in the latest IPI release, we opine that production data will start to deteriorate from Mar 2020 due to the global spread of Covid-19 and domestic Movement Control Order (MCO) that began on 18 Mar 2020. This MCO has been extended by another two weeks to 28 Apr 2020. Despite global PMI manufacturing rising slightly to 47.6 in Mar (Feb: 47.1), this was due to China’s stabilisation. Excluding China, global PMI manufacturing deteriorated to 46.6, the lowest level since May 2009 as new order intakes recorded its sharpest decrease since early 2009. Although the government is planning to lift operation restrictions on certain manufacturers during the MCO, this reopening is anticipated to be very limited and contingent on strict adherence to health and safety guidelines. Hence, we maintain our expectation for Malaysia’s GDP to weaken to -4.0% YoY in 2020 (2019: +4.3% YoY).

Source: Hong Leong Investment Bank Research - 14 Apr 2020