IPI growth sank -5.2% YoY in Jul (Jun: +1.4% YoY) as the nation remained in stricter phases of lockdown of the National Recovery Plan (NRP), faring worse than the consensus estimate of -0.7% YoY. The drop was attributed to lower manufacturing production (-6.5% YoY; Jun: -0.2% YoY) and electricity production (-6.6% YoY; Jun: -4.8% YoY). Mining production decelerated sharply (+0.6% YoY; Jun: +10.3% YoY).

DATA HIGHLIGHTS

IPI growth sank -5.2% YoY in Jul (Jun: +1.4% YoY), faring worse than the consensus estimate of -0.7% YoY. This was the first decline since Nov 2020, attributed to lower manufacturing (-6.5% YoY; Jun: -0.2% YoY) and electricity production (-6.6% YoY; Jun: -4.8% YoY). Mining production decelerated sharply (+0.6% YoY; Jun: +10.3% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI growth also declined (-6.1%; Jun: +1.4%) following negative growth across all sector indices; manufacturing (-8.2%; Jun: +3.9%), mining (-4.6%; Jun: -4.4%) and electricity (-2.8%; Jun: -8.4%).

The manufacturing index shrank further (-6.5% YoY; Jun: -0.2% YoY), weighed down by worker capacity constraints for certain industries. Nevertheless, favourable external demand conditions continued to support the export-oriented sector (+2.6% YoY; Jun: +9.5% YoY). Growth was led by ‘petroleum, chemical, rubber & plastic products’ (+14.3% YoY; Jun: +19.0% YoY), which offset negative growth in ‘wood products, furniture, paper products, printing’ (-23.7% YoY; Jun: -18.2% YoY), ‘textiles, wearing apparel, leather products & footwear’ (-11.5% YoY; Jun: -14.5% YoY) and ‘electrical & electronics products’ (-1.7% YoY; Jun: +8.4% YoY).

The domestic-oriented sector continued to slide by -25.2% YoY (Jun: -21.1% YoY), owing to lower production of ‘transport equipment & other manufactures’ (-43.8% YoY; Jun: -42.7% YoY), ‘non-metallic mineral products, basic & fabricated metal products’ (- 27.6% YoY; Jun: -21.3% YoY) and ‘food, beverages & tobacco’ (-10.9% YoY; Jun: - 6.4% YoY).

Mining production decelerated sharply to +0.6% YoY (Jun: +10.3% YoY), supported by growth in natural gas production, albeit at a slower pace (+4.1% YoY; Jun: +13.4% YoY), while crude petroleum production fell -3.5% YoY (Jun: +6.3% YoY). However, on a monthly basis, both natural gas and crude petroleum recorded lower production levels of -5.5% (Jun: -8.6%) and -3.5% (Jun: -3.3%) respectively.

Malaysia’s IPI fared worse against its regional peers which continued to record positive growth in Jul, albeit at more moderate rates. The nation logged the highest Covid-19 case count per capita relative to its peers, which then necessitated more stringent social and economic restrictions.

HLIB’s VIEW

Growth in the global manufacturing sector remained expansionary, but softened to a 6- month low in Aug (54.1; Jul: 55.4) as rates of output growth decelerated in major markets such as the US and EU, while Asia, on average, slipped into contraction. On the domestic front, manufacturing activity is expected to turn around in the near term with 71.3% of the adult population vaccinated (as of 9th Sep) and the green light given for businesses to operate based on their workers’ vaccination rate. We maintain our 2021 GDP forecast at +3.1% YoY.

Source: Hong Leong Investment Bank Research - 13 Sept 2021