IPI registered a deeper contraction of -2.2% YoY in Nov (Oct: -0.5% YoY), faring worse than consensus estimate of +0.1% YoY increase. Growth weakened on the back of declines in mining and electricity production, amid slower growth in manufacturing production. For now, we maintain 2020 GDP at -5.5% and 2021 GDP at +6.0% with downside risk bias.

DATA HIGHLIGHTS

IPI growth declined by -2.2% YoY in Nov (Oct: -0.5% YoY), faring worse than consensus estimate of +0.1% YoY increase. Growth weakened on the back of declines in mining (- 15.4% YoY; Oct: -10.6% YoY) and electricity production (-2.5% YoY; Oct: +0.8% YoY), amid slower growth in manufacturing production (+2.0% YoY; Oct: +2.4% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI posted a smaller contraction of -1.0% (Oct: -1.8%). The decline softened for manufacturing production (-0.2%; Oct: -1.8%) but steepened for mining (-2.2%; Oct: -1.8%) and electricity production (-2.5%; Oct: -0.1%).

Manufacturing production eased to +2.0% YoY (Oct: +2.4% YoY) as the pickup in the export-oriented sector partially offset the larger decline in the domestic-oriented sector. Growth in the export-oriented sector (+4.4% YoY; Oct: +4.2% YoY) was driven by production of ‘electrical & electronics products’ (+8.3% YoY; Oct: +7.5% YoY), ‘wood products, furniture, paper products, printing’ (+2.3% YoY; Oct: +1.5% YoY), driven by pandemic-related spending. These offset the decline in ‘textiles, wearing apparel, leather products & footwear’ (-4.0% YoY; Oct: -2.6% YoY).

Meanwhile, the domestic-oriented sector recorded a larger decline (-2.9% YoY; Oct: - 1.3% YoY) amid the full month of CMCO, owing to the drop in production of ‘food, beverages & tobacco’ (-8.7% YoY; Oct: -3.4% YoY) and ‘non-metallic mineral products, basic & fabricated metal products’ (-3.0% YoY; Oct: -2.2% YoY) which offset the acceleration in ‘transport equipment & other manufactures’ (+6.5% YoY; Oct: +3.5% YoY) due to tax incentives to spur automotive purchases.

Mining production has declined for the ninth straight month (-15.4% YoY; Oct: -10.6% YoY) following lower crude petroleum (-15.8% YoY; Oct: -12.6% YoY) and natural gas production (-15.1% YoY; Oct: -9.0% YoY). On a monthly basis, crude petroleum decreased by -1.8% (Oct: +5.8%) while natural gas production decelerated to +0.3% (Oct: +9.1%). Disruptions at Petronas’ Miri and Cendor crude oil supplies in late Oct may have contributed to the weak crude petroleum exports during the month. By our estimates, these platforms have a combined production capacity of 32,000bpd (4.9% of total crude petroleum production in Malaysia).

HLIB’s VIEW

On the global front, manufacturing PMI sustained at 53.8 in Dec (Nov: 53.8). However, readings for output and new orders showed slower rates of growth, which could be due to some major economies imposing stricter lockdown measures following the presence of more infectious Covid-19 strain. At home, manufacturing production (+2.0% YoY; Oct: +2.4% YoY) and sales (+2.1% YoY; Oct: +2.2% YoY) both expanded for the sixth consecutive month despite undergoing a third wave of Covid-19 infections. While we anticipate manufacturing production to sustain expansion at a modest pace, the continuous rise in daily infections at home and abroad have led to the reintroduction of tighter lockdown measures, this may eventually dampen demand and manufacturing activity. For now, we maintain 2020 GDP at -5.5% and 2021 GDP at +6.0% with downside risk bias.

Source: Hong Leong Investment Bank Research - 12 Jan 2021