IPI growth moderated to +26.0% YoY in May (Apr: +50.1% YoY), slightly below the consensus estimate of +28.0% YoY. Growth was supported by continued expansion across all indices; manufacturing (+29.8% YoY; Apr: +68.0% YoY), mining (+20.7% YoY; Apr: +14.3% YoY) and electricity production (+7.9% YoY; Apr: +23.6% YoY).

DATA HIGHLIGHTS

IPI growth moderated to +26.0% YoY in May (Apr: +50.1% YoY), but remained elevated due to low base effect. Growth was slightly lower than the consensus estimate of +28.0% YoY. The index was supported by acceleration in mining production (+20.7% YoY; Apr: +14.3% YoY), as well as continued expansion in manufacturing (+29.8% YoY; Apr: +68.0% YoY) and electricity production (+7.9% YoY; Apr: +23.6% YoY) (refer to Figure #1).

 On a monthly seasonally adjusted basis, IPI growth declined by -3.4% (Apr: +0.1%) following lower manufacturing (-5.2%; Apr: -0.5%) and electricity production (-2.9%; Apr: -1.7%) which offset the quicker pace of mining production (+4.8%; Apr: +1.9%).

Manufacturing production continued to be supported by low base effect (+29.8% YoY; Apr: +68.0% YoY). Growth in the export-oriented sector softened to +30.2% YoY (Apr: +62.2% YoY) following more modest production rates across ‘wood products, furniture, paper products, printing’ (+53.0% YoY; Apr: +212.6% YoY), ‘textiles, wearing apparel, leather products & footwear’ (+39.9% YoY; Apr: +230.6% YoY), ‘petroleum, chemical, rubber & plastic products’ (+34.8% YoY; Apr: +37.5% YoY) and ‘electrical & electronics products’ (+21.6% YoY; Apr: +70.1% YoY).

The domestic-oriented sector also moderated (+29.0% YoY; Apr: +81.0% YoY) amid softer ‘transport equipment & other manufactures’ (+68.9% YoY; Apr: +275.2% YoY), ‘non-metallic mineral products, basic & fabricated metal products’ (+49.4% YoY; Apr: +141.0% YoY) and ‘food, beverages & tobacco’ production (+0.7% YoY; Apr: +12.7% YoY).

Mining production accelerated to +20.7% YoY (Apr: +14.3% YoY), driven by improvements in natural gas (+30.9% YoY; Apr: +23.9% YoY) and crude petroleum production (+8.6% YoY; Apr: +2.7% YoY), partly due to low base effect. On a monthly basis, higher production was also seen for both natural gas (+5.1%; Apr: -3.7%) and crude petroleum (+7.4%; Apr: -8.4%). The pickup in crude petroleum production could be attributed to the OPEC+ agreement to ease production cuts from May to July.

HLIB’s VIEW

On the global front, the manufacturing sector remained in strong expansionary phase in June (manufacturing PMI: 55.5; May: 56.0). However, stretched global supply chains continued to disrupt production schedules and constrained output growth. In line with this, NAM Manufacturers’ 2Q21 Outlook Survey reported that while 90.1% of its respondents are positive about their company’s outlook and rising input costs, workforce and supply chain challenges are top causes for concern. Domestically, due to the FMCO implemented in 1st June 2021 and EMCO in most Selangor districts in July, the limited number of workforce allowed (60% of worker capacity) and closure of manufacturing plants during the EMCO period is expected to dampen manufacturing activity in the near-term. Based on the National Recovery Plan, more sectors would be allowed to reopen under Phase 2 National Recovery Plan which we hope to take place in August. We maintain our 2021 GDP forecast at 4.0% YoY.

Source: Hong Leong Investment Bank Research - 13 Jul 2021