IPI reversed into a contraction of -0.5% YoY in Oct (Sep: +1.0% YoY), faring worse than the consensus estimate of +0.2% YoY. Growth weakened on the back of steeper decline in mining production and slower manufacturing production, which offset the rebound in electricity production. We maintain 2020 GDP at - 5.5% and revised 2021 GDP downwards to +6.0% (previous: +6.5%).

DATA HIGHLIGHTS

IPI growth declined by -0.5% YoY in Oct (Sep: +1.0% YoY), lower than the consensus estimate of +0.2% YoY. Growth weakened on the back of steeper decline in mining (- 10.6% YoY; Sep: -9.6% YoY) and slower manufacturing production (+2.4% YoY; Sep: +4.3% YoY), which offset the rebound in electricity production (+1.0% YoY; Sep: -2.1% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI also contracted by -1.8% (Sep: +1.0%) due to lower mining (-1.8%; Sep: -3.3%) and manufacturing (-1.7%; Sep: +1.6%), as well as sharp slowdown in electricity production (+0.1%; Sep: +2.2%).

Manufacturing production softened to +2.4% YoY (Sep: +4.3% YoY) on account of contraction in the domestic-oriented sector and moderation in the export-oriented sector. The domestic-oriented sector posted a decline of -1.5% YoY (Sep: +1.4% YoY) as the re-introduction of CMCO 2.0 implemented during the month dampened domestic demand. ‘Food, beverages & tobacco’ (-3.4% YoY; Sep: +4.9% YoY) and ‘non-metallic mineral products, basic & fabricated metal products’ saw decreased production, while ‘transport equipment & other manufactures’ (+3.5% YoY; Sep: +4.5% YoY) moderated.

The export-oriented sector moderated to +4.3% YoY (Sep: +5.7% YoY) amid slower production of ‘electrical & electronics products’ (+8.1% YoY; Sep: +9.8% YoY), ‘petroleum, chemical, rubber & plastic products’ (+1.7% YoY; Sep: +3.2% YoY), ‘wood products, furniture, paper products, printing’ (+1.5% YoY; Sep: +2.3% YoY), as well as continued decline in ‘textiles, wearing apparel, leather products & footwear’ (-2.6% YoY; Sep: -4.1% YoY).

Mining production registered its eighth consecutive month of decline (-10.6% YoY; Sep: -9.6% YoY), owing to lower crude petroleum (-12.6% YoY; Sep: -9.7% YoY) and natural gas production (-9.0% YoY; Sep: -9.5% YoY). However, on a monthly basis, both crude petroleum (+5.8%; Sep: -4.7%) and natural gas (+9.1%; Sep: -3.6%) production rebounded. Mining production is expected to remain subdued following the OPEC+ agreement to cut oil production by 7.2 million bpd from Jan – Mar 2021 and 5.8 million bpd from Apr – Dec 2021.

HLIB’s VIEW

Despite the renewed wave of Covid-19 cases in global and domestic economy, manufacturing output expanded for the fifth successive month in November. Global manufacturing PMI continued to increase to 53.7 in Nov (Oct: 53.0), the fastest pace since January 2018. Manufacturing employment rose for the first time in 12 months, at a gradual pace. The Semiconductor Industry Association (SIA) also announced worldwide sales of semiconductors rose 6.0% YoY in October, driven by sales to US (14.2% YoY), China (6.3% YoY) amid decrease to Europe (-4.8% YoY) and Japan (- 1.0% YoY). While Malaysia has re-introduced CMCO 2.0, we anticipate manufacturing production to continue expanding, albeit at a slower pace. We maintain our expectation for GDP to contract by -5.5% in 2020 and revised downwards 2021 GDP to +6.0% (previous: +6.5%)

Source: Hong Leong Investment Bank Research - 14 Dec 2020