IPI marginally declined by -0.7% YoY in Aug (Jul: -5.1% YoY), faring worse than the consensus estimate of a +0.3% YoY growth. Growth remained in negative territory owing to lower mining (-4.2% YoY; Jul: +0.6% YoY) and electricity production (-4.8% YoY; Jul: -4.7% YoY), but was cushioned by slight rebound in manufacturing production (+0.6% YoY; Jul: -6.5% YoY) as companies could begin scaling up operations based on worker vaccination rates from mid-Aug onwards.

DATA HIGHLIGHTS

IPI declined at a slower pace in Aug (-0.7% YoY; Jul: -5.1% YoY), faring worse than the consensus estimate of a +0.3% YoY growth. Growth remained in negative territory owing to lower mining (-4.2% YoY; Jul: +0.6% YoY) and electricity production (-4.8% YoY; Jul: -4.7% YoY), but was cushioned by slight rebound in manufacturing production (+0.6% YoY; Jul: -6.5% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI grew +2.3% (Jul: -6.0%) amid the turnaround in manufacturing (+5.3%; Jul: -8.2%) and electricity production (+2.3%; Jul: -0.7%). Mining production continued to fall (-3.8%; Jul: -4.6%).

The manufacturing index rebounded slightly (+0.6% YoY; Jul: -6.5% YoY) as factories could operate based on their rate of worker vaccination starting from the latter half of the month, regardless of the National Recovery Plan (NRP) phase. The export-oriented sector performed better (+9.2% YoY; Jul: +2.6% YoY) amid favourable external demand conditions. Growth was driven by ‘petroleum, chemical, rubber & plastic products’ (+15.2% YoY; Jul: +14.3% YoY) and ‘electrical & electronics products’ (+8.6% YoY; Jul: -1.7% YoY), which offset lower production of ‘wood products, furniture, paper products, printing’ (-11.0% YoY; Jul: -23.7% YoY) and ‘textiles, wearing apparel, leather products & footwear’ (-5.2% YoY; Jul: -11.5% YoY). E&E production is anticipated to remain robust and in line with the industry trend, reflected by the US Empire State Manufacturing Future Technology Spending Index (Sep: +33.0; Aug: +15.0).

Meanwhile, the domestic-oriented sector declined at a slower rate (-16.0% YoY; Jul: -25.2% YoY) following smaller decrease across ‘transport equipment & other manufactures’ (-34.3% YoY; Jul: -43.8% YoY), ‘non-metallic mineral products, basic & fabricated metal products’ (-13.0% YoY; Jul: -27.6% YoY) and ‘food, beverages & tobacco’ (-6.7% YoY; Jul: -10.9% YoY).

Mining production shrank -4.2% YoY (Jul: +0.6% YoY) as crude petroleum production dropped further (-11.0% YoY; Jul: -3.5% YoY), while natural gas production held up better (+1.6% YoY; Jul: +4.1% YoY), albeit at a modest pace. On a monthly basis, both crude petroleum (-6.0%; Jul: -3.5%) and natural gas (-3.4%; Jul: -5.5%) continued to decline. On 4th Oct, OPEC+ confirmed it would stick to its current output policy to boost output by 400,000 bpd each month until Apr 2022. In line with this, Dato' Sri Mustapa bin Mohamed said Malaysia was also set to increase its crude oil output.

HLIB’s VIEW

On the global level, while output growth has picked up, efforts to raise global output continued to be limited by logistic and supply chain disruptions. In Malaysia, we expect manufacturing activity to continue its positive momentum in the coming months, alongside improvement in the domestic-oriented sector as most states have transitioned to at least Phase 3 of the NRP. We maintain our 2021 GDP forecast at +4.1% YoY.

Source: Hong Leong Investment Bank Research - 13 Oct 2021