IPI growth spiked to +50.1% YoY in Apr (Mar: +9.3% YoY) due to low base effect, exceeding the consensus estimate of +47.9% YoY. Growth was contributed by surge in manufacturing (+68.0% YoY; Mar: +12.7% YoY) and electricity production (+22.9% YoY; Mar: +10.3% YoY), as well as rebound in mining production (+14.3% YoY; Mar: -1.9% YoY).

DATA HIGHLIGHTS

IPI growth spiked to +50.1% YoY in Apr (Mar: +9.3% YoY) due to low base effect, exceeding the consensus estimate of +47.9% YoY. The index grew on the surge in manufacturing (+68.0% YoY; Mar: +12.7% YoY) and electricity production (+22.9% YoY; Mar: +10.3% YoY), as well as rebound in mining production (+14.3% YoY; Mar: -1.9% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI growth only marginally rebounded (+0.1%; Mar: -2.2%), as lower manufacturing (-0.5%; Mar: -1.8%) and electricity production (- 2.3%; Mar: +3.2%) partly offset the turnaround in mining production (+1.9%; Mar: -4.6%).

Manufacturing production soared to +68.0% YoY (Mar: +12.7% YoY), driven by low base effect as the manufacturing sector felt the full brunt of the pandemic in Apr 2020. Export oriented sector growth (+62.2% YoY; Mar: +13.5% YoY) was attributed to higher production across all industries, which includes ‘textiles, wearing apparel, leather products & footwear’ (+230.6% YoY; Mar: +9.1% YoY), ‘wood products, furniture, paper products, printing’ (+212.6% YoY; Mar: +11.1% YoY), ‘electrical & electronics products’ (+70.1% YoY; Mar: +13.8% YoY), and ‘petroleum, chemical, rubber & plastic products’ (+37.5% YoY; Mar: +14.1% YoY).

The domestic-oriented sector also surged (+81.0% YoY; Mar: +11.0% YoY), owing to stronger growth in ‘transport equipment & other manufactures’ (+275.2% YoY; Mar: +20.9% YoY), ‘non-metallic mineral products, basic & fabricated metal products’ (+141.0% YoY; Mar: +8.0% YoY) and ‘food, beverages & tobacco’ (+12.6% YoY; Mar: +7.2% YoY).

Mining production recorded its first positive growth (+14.3% YoY; Mar: -1.9% YoY) after thirteen consecutive months of decline. This was due to improvements in natural gas (+23.9% YoY; Mar: +4.3% YoY) and crude petroleum production (+2.7% YoY; Mar: - 9.4% YoY), also owing to low base effect. Meanwhile, on a monthly basis, production decreased for both natural gas (-3.7%; Mar: +6.2%) and crude petroleum (-8.4%; Mar: +8.1%). Crude petroleum production could see an increase in May to July as OPEC+ agrees to ease production cuts by returning 2.1m bpd of supply to the market.

HLIB’s VIEW

On the global front, the manufacturing sector continued to expand at a robust pace in May (manufacturing PMI: 56.0; Apr: 55.9). Solid expansion was seen in some European countries and the US, where pandemic restrictions have eased. Domestically, while overall manufacturing IPI growth is expected to spike in 2Q21 due to low base effect from MCO 1.0, the magnitude of increase is expected to be capped by the four-week full lockdown from 1st – 28th June. Following the latest extension of FMCO (15th June – 28th June), our GDP projection is now 4.0% YoY. Despite the downside risk to our GDP forecast, we also note supportive factors such as recovering global demand from major economies and ramp-up in vaccination rates in Malaysia that will provide some respite to the economy. We maintain our expectation for BNM to maintain the OPR at 1.75% in 2021.

Source: Hong Leong Investment Bank Research - 14 Jun 2021