IPI growth rose +1.5% YoY in Feb (Jan: +1.2% YoY), slightly below the consensus estimate of +1.8% YoY. Growth continued to be underpinned by manufacturing production (+4.5% YoY; Jan: +3.5% YoY) which offset the steeper decline in mining (-6.0% YoY; Jan: -4.5% YoY) and electricity production (-5.8% YoY; Jan: - 4.6% YoY). We maintain 2021 GDP at +5.0%.

DATA HIGHLIGHTS

IPI growth rose +1.5% YoY in Feb (Jan: +1.2% YoY), slightly lower than the consensus estimate of +1.8% YoY. Growth continued to be underpinned by manufacturing production (+4.5% YoY; Jan: +3.5% YoY) which offset the steeper decline in mining (- 6.0% YoY; Jan: -4.5% YoY) and electricity production (-5.8% YoY; Jan: -4.6% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI growth accelerated to +6.3% (Jan: -0.3%) as manufacturing (+4.1%; Jan: +2.0%), mining (+4.1%; Jan: +2.0%) and electricity production (+4.2%; Jan: -2.4%) gained traction. This could be attributed to most states (excluding Selangor, Kuala Lumpur, Johor and Penang) entering the CMCO phase from 19th Feb onwards.

Manufacturing production increased by +4.5% YoY (Jan: +3.5% YoY), as stronger growth in the export-oriented sector offset the weaker performance in domestic-oriented sector. The export-oriented sector grew +8.2% YoY (Jan: +5.6% YoY), led by ‘electrical & electronics products’ (+10.3% YoY; Jan: +7.9% YoY), particularly for computer, electronics and optical products, and ‘petroleum, chemical, rubber & plastic products’ (+8.9% YoY; Jan: +4.5% YoY), primarily for manufacture of pharmaceuticals, rubber and plastic products. However, production of ‘wood products, furniture, paper products, printing’ slowed (+0.9% YoY; Jan: +2.4% YoY), while ‘textiles, wearing apparel, leather products & footwear’ declined (-1.0% YoY; Jan: -0.8% YoY).

Meanwhile, the domestic-oriented sector recorded a decline (-2.9% YoY; Jan: -0.4% YoY) as the decrease in production of ‘food, beverages & tobacco’ (-7.4% YoY; Jan: 0.0% YoY) and ‘non-metallic mineral products, basic & fabricated metal products’ (- 2.7% YoY; Jan: -1.0% YoY) offset the rebound in ‘transport equipment & other manufactures’ (+3.2% YoY; Jan: -0.2% YoY).

Mining production posted its 12th straight month of decline (-6.0% YoY; Jan: -4.5% YoY), owing to weaker production of crude petroleum (-11.5% YoY; Jan: -9.4% YoY) and natural gas (-1.6% YoY; Jan: -0.5% YoY). Similarly, on a monthly basis, both crude petroleum and natural gas recorded declining production rates of -11.4% (Jan: +1.8%) and -7.1% (Jan: +1.7%) respectively.

HLIB’s VIEW

The near-term outlook for global manufacturing remains positive, reflected by Mar’s expansion in global manufacturing PMI of 55.0 (Feb: 53.9), the highest reading since Feb 2011. This was supported by further growth of output, new orders and employment. In line with this, National Association of Manufacturer’s 1Q21 outlook survey reported that 87.6% of its respondents are positive about their company’s outlook. 6.3% of firms expect revenues to return to pre-pandemic levels by the end of 1Q21. Overall, 67.6% of firms anticipate it to return by the end of 2021. Domestically, the manufacturing sector is expected to remain a bright spot premised on improvement in external demand. We maintain 2021 GDP at +5.0%.

Source: Hong Leong Investment Bank Research - 12 Apr 2021