IPI growth accelerated to +5.5% YoY in Oct (Sep: +2.5% YoY) following the lifting of Covid-19 restrictions, beating the consensus estimate of +3.7% YoY. Growth stemmed from higher growth in manufacturing (+8.0% YoY; Sep: +4.0% YoY) and electricity production (+4.1% YoY; Sep: +0.4% YoY), which offset the steeper decline in mining production (-3.5% YoY; Sep: -3.0% YoY).

DATA HIGHLIGHTS

IPI growth accelerated to +5.5% YoY in Oct (Sep: +2.5% YoY) following the lifting of Covid-19 restrictions, beating the consensus estimate of +3.7% YoY. Growth was driven by higher manufacturing (+8.0% YoY; Sep: +4.0% YoY) and electricity production (+4.1% YoY; Sep: +0.4% YoY), which offset the steeper decline in mining production (-3.5% YoY; Sep: -3.0% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI rose at a modest pace (+1.7%; Sep: +4.1%) following softer growth in manufacturing (+2.8%; Sep: +4.9%) and electricity (+4.2%; Sep: +6.6%), offsetting the larger decline in mining production (-2.2%; Sep: -0.5%).

The manufacturing index accelerated to +8.0% YoY (Sep: +4.0% YoY) amid stronger growth in export-oriented (+9.0% YoY; Sep: +7.6% YoY) and rebound in domestic oriented sectors (+5.9% YoY; Sep: -3.3% YoY). In the export-oriented sector, broad based improvement across industries was seen. E&E production grew +13.6% YoY (Sep: +12.3% YoY), mainly on higher computers & peripheral equipment and consumer electronics production. ‘Petroleum, chemical, rubber & plastic products’ (+6.3% YoY; Sep: +6.1% YoY), ‘textiles, wearing apparel, leather products & footwear’ (+3.1% YoY; Sep: -0.6% YoY) and ‘wood products, furniture, paper products, printing’ (+1.4% YoY; Sep: -5.2% YoY) also recorded a pickup in production.

Meanwhile, the domestic-oriented sector recovered (+5.9% YoY; Sep: -3.3% YoY) on the back of acceleration in ‘food, beverages & tobacco’ production (+9.3% YoY; Sep: +2.1% YoY) and rebound in ‘non-metallic mineral products, basic & fabricated metal products’ (+3.5% YoY; Sep: -2.9% YoY), as well as ‘transport equipment & other manufactures’ (+4.4% YoY; Sep: -12.7% YoY). Vehicle production contributed the most to the transport industry, which could be attributed to companies ramping up production and deliveries to fulfil backlog orders.

Mining production continued to decline at a steeper pace (-3.5% YoY; Sep: -3.0% YoY). Despite some improvement in natural gas production (+2.0% YoY; Sep: +1.0% YoY), the mining sector was dragged by continued weakness in crude petroleum production (-10.2% YoY; Sep: -7.7% YoY). However, on a monthly basis, production picked up for both natural gas (+10.2%; Sep: -4.2%) and crude petroleum (+3.0%; Sep: -1.1%).

HLIB’s VIEW

Global manufacturing PMI edged lower to 54.2 in Nov (Oct: 54.3) as faster expansion in output (52.6; Oct: 51.5) was offset by slower new orders (53.3; Oct: 53.7) and employment (51.4; Oct: 51.8). Sentiment remained positive on the global front; however, manufacturers still expect some headwinds from continued supply chain disruptions, which are anticipated to only ease next year. Despite these headwinds, the lifting of Covid-19 restrictions domestically and abroad is expected to further improve demand conditions and support manufacturing activity in Malaysia. We maintain 2021 GDP forecast at +3.5% YoY.

Source: Hong Leong Investment Bank Research - 13 Dec 2021