IPI growth eased to +1.2% YoY in Jan (Dec: +1.7% YoY), faring better than the consensus estimate of +1.0% YoY. Growth softened on the back of continued decline in mining and electricity production amid moderation in manufacturing production. This could be attributed to imposition of MCO2.0 in most states starting on 13th January 2021. We maintain 2021 GDP at +5.0%.

DATA HIGHLIGHTS

IPI growth eased to +1.2% YoY in Jan (Dec: +1.7% YoY), faring better than the consensus estimate of +1.0% YoY, as mining (-4.5% YoY; Dec: -5.4% YoY) and electricity production (-4.6% YoY; Dec: -0.2% YoY) continued to decline amid moderation in manufacturing production (+3.5% YoY; Dec: +4.1% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI decreased by -0.3% (Dec: +2.7%), owing to the decline in manufacturing (-0.8%; Dec: +1.9%), electricity (-2.4%; Dec: +1.4%) and slower mining production (+2.0%; Dec: +5.3%).

Manufacturing production moderated to +3.5% YoY (Dec: +4.1% YoY), buoyed by the export-oriented sector amid smaller decline in the domestic-oriented sector. The export-oriented sector grew at a softer pace (+5.6% YoY; Dec: +7.0% YoY), supported by expansion in manufactures of ‘electrical & electronics products’ (+7.9% YoY; Dec: +7.6% YoY). ‘Petroleum, chemical, rubber & plastic products’ (+4.5% YoY; Dec: +7.7% YoY) and ‘wood products, furniture, paper products, printing’ (+2.4% YoY; Dec: +3.3% YoY) recorded more moderate growth, while ‘textiles, wearing apparel, leather products & footwear’ production declined (-0.8% YoY; Dec: +1.3% YoY).

Meanwhile, the imposition of MCO2.0 during the month could have led to softer domestic demand. The domestic-oriented sector continued to decline, albeit at a slower pace (-0.4% YoY; Dec: -1.6% YoY). ‘Non-metallic mineral products, basic & fabricated metal products’ declined (-1.0% YoY; Dec: -1.4% YoY), while ‘food, beverages & tobacco’ was unchanged (0.0% YoY; Dec: -7.9% YoY). ‘Transport equipment & other manufactures’ fell -0.2% YoY (Dec: +8.4% YoY), as vehicle production (-0.9% MoM; Dec: +4.8% MoM) was affected by MITI’s initial decision to exclude automotive assembly from its permitted list to operate during MCO2.0, which was later reinstated during the month.

The decline in mining production eased to -4.5% YoY (Dec: -5.4% YoY) following a smaller drop in natural gas production (-0.5% YoY; Dec: -2.6% YoY) but larger decline in crude petroleum production (-9.4% YoY; Dec: -9.0% YoY). On a monthly basis, both natural gas and crude petroleum recorded slower production rates of +1.7% (Dec: +13.8%) and (+1.8%; Dec: +6.9%) respectively.

HLIB’s VIEW

On the global front, manufacturing PMI saw a slight acceleration (Feb: 53.9; Jan: 53.6) driven by output, new export orders and future output that offset the slower pace of growth in new orders. We expect domestic manufacturing activity to continue to grow, as improvement in external demand is anticipated to lift the export-oriented manufacturing sectors following the rollout of mass vaccinations and further reopening of many major economies. Domestically, the reopening of more economic sectors and lower daily Covid-19 confirmation cases reported could also lift business and consumers’ sentiment. We maintain 2021 GDP at +5.0%

Source: Hong Leong Investment Bank Research - 15 Mar 2021