IPI growth decelerated to +1.4% YoY in Jun (May: +26.1% YoY), but fared better than the consensus estimate of -1.0% YoY decline. Continued mining production (+10.3% YoY; May: +20.7% YoY) lent support to overall growth, offsetting the decline in manufacturing (-0.2% YoY; May: +29.8% YoY) and electricity production (-4.8% YoY; May: +8.8% YoY). In 2Q21, IPI surged by +22.6% YoY (1Q21: +3.9% YoY).

DATA HIGHLIGHTS

IPI growth decelerated to +1.4% YoY in Jun (May: +26.1% YoY), but fared better than the consensus estimate of -1.0% YoY decline. The index was supported by continued mining production (+10.3% YoY; May: +20.7% YoY) which offset the decline in manufacturing (-0.2% YoY; May: +29.8% YoY) and electricity production (-4.8% YoY; May: +8.8% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI also registered growth of +1.4% (May: - 3.4%), driven by higher manufacturing production (+3.9%; May: -5.2%) amid lower mining (-4.4%; May: +4.8%) and electricity production (-8.4%; May: -2.1%).

The manufacturing index posted its first decline since May 2020 (-0.2% YoY; May: +29.8% YoY) as only essential manufacturing industries were permitted to operate during the nationwide Full Movement Control Order (FMCO) with 60% worker capacity. Despite registering more modest growth, the export-oriented sector performed better amid favourable external demand conditions (+9.5% YoY; May: +30.2% YoY). ‘Petroleum, chemical, rubber & plastic products’ moderated to +19.0% YoY (May: +34.8% YoY), while ‘electrical & electronics products’ eased to +8.4% YoY (May: +21.6% YoY). However, ‘wood products, furniture, paper products, printing’ (-18.2% YoY; May: +53.0% YoY) and ‘textiles, wearing apparel, leather products & footwear’ (- 14.5% YoY; May: +39.9% YoY) declined.

The domestic-oriented sector slid by -21.1% YoY (May: +29.0% YoY). Among the industries, ‘transport equipment & other manufactures’ recorded the steepest decline (- 42.7% YoY; May: +68.9% YoY), followed by ‘non-metallic mineral products, basic & fabricated metal products’ (-21.3% YoY; May: +49.4% YoY) and ‘food, beverages & tobacco’ (-6.4% YoY; May: +0.7% YoY).

Mining production moderated to +10.3% YoY (May: +20.7% YoY), supported by continued natural gas (+13.4% YoY; May: +30.9% YoY) and crude petroleum production (+6.3% YoY; May: +8.6% YoY). However, on a monthly basis, lower production was recorded for natural gas (-8.6%; May: +5.1%) and crude petroleum (- 3.3%; May: +7.4%).

In 2Q21, IPI surged by +22.6% YoY (1Q21: +3.9% YoY) following stronger growth across all indices; manufacturing (+26.3% YoY; 1Q21: +6.8% YoY), mining (+15.1% YoY; 1Q21: -4.1% YoY), electricity (+8.6% YoY; 1Q21: -0.1% YoY) owing to low base effect.

HLIB’s VIEW

The global manufacturing sector continued its expansion in Jul, albeit at a slightly slower rate (manufacturing PMI: 55.4; Jun: 55.5). Output and new orders eased as supply chain constraints disrupted production schedules and drove up input prices. Domestically, growth in manufacturing and mining IPI are expected to contribute to 2Q21 GDP, mostly due to low base effect, which will be released on 13th Aug 2021.

Source: Hong Leong Investment Bank Research - 11 Aug 2021