IPI growth moderated to +5.8% YoY in Dec (Nov: +9.4% YoY), weaker than consensus expectations of +6.8% YoY. This followed a decline in mining production (-2.5% YoY; Nov: +3.7% YoY) and slower growth in manufacturing (+8.4% YoY; Nov: +11.3% YoY) as well as electricity production (+3.8% YoY; Nov: +5.1% YoY). In 4Q21, IPI rebounded by +6.9% YoY (3Q21: -1.1% YoY).

DATA HIGHLIGHTS

IPI growth moderated to +5.8% YoY in Dec (Nov: +9.4% YoY), weaker than consensus expectations of +6.8% YoY. Mining production returned to contraction (-2.5% YoY; Nov: +3.7% YoY) while manufacturing (+8.4% YoY; Nov: +11.3% YoY) and electricity production (+3.8% YoY; Nov: +5.1% YoY) slowed (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI sank (-0.7%; Nov: +3.0%) from decline in mining (-1.1%; Nov: +6.8%) and manufacturing (-0.9%; Nov: +2.9%) which offset the marginal rebound in electricity production (+0.1%; Nov: -0.8%).

Manufacturing production eased to +8.4% YoY (Nov: +11.3% YoY) following softer growth in domestic and export-oriented sectors. Export-oriented production (+9.4% YoY; Nov: +12.6% YoY) moderated in tandem with Dec’s exports performance (+29.2% YoY; Nov: +32.4% YoY). Within the sector, the stronger E&E showing (+18.2% YoY; Nov: +17.8% YoY) was offset by slower growth across ‘wood products, furniture, paper products, printing’ (+6.5% YoY; Nov: +9.4% YoY), ‘textiles, wearing apparel, leather products & footwear’ (+4.2% YoY; Nov: +6.0% YoY) and ‘petroleum, chemical, rubber & plastic products’ (+2.1% YoY; Nov: +8.5% YoY). E&E production was also in line with the rise in the Empire State Future Technology Spending index (Dec: 31.4; Nov: 28.0).

Similarly, production in the domestic-oriented sector eased (+6.1% YoY; Nov: +8.6% YoY). ‘Transport equipment & other manufactures’ weakened (+1.4% YoY; Nov: +4.5% YoY) as the floods hampered motor vehicle production (-1.7% YoY; Nov: +3.5% YoY). Meanwhile, ‘food, beverages & tobacco’ (+10.3% YoY; Nov: +12.9% YoY) and ‘non metallic mineral products, basic & fabricated metal products’ (+5.3% YoY; Nov: +7.6% YoY) moderated as well.

Mining production (-2.5% YoY; Nov: +3.7% YoY) declined on the back of lower crude petroleum (-5.5% YoY; Nov: -4.4% YoY) and natural gas production (-0.2% YoY; Nov: +10.2% YoY). However, on a monthly basis, crude petroleum production picked up (+5.7%; Nov: +4.5%) while natural gas eased (+3.1%; Nov: +8.4%). In the coming months, mining activity may be muted following an unplanned maintenance exercise at the Gumusut-Kakap oilfield.

In 4Q21, IPI rebounded by +6.9% YoY (3Q21: -1.1% YoY), driven by manufacturing (+9.2% YoY; 3Q21: -0.7% YoY) and electricity (+4.3% YoY; 3Q21: -3.1% YoY), offsetting the slower contraction in mining production (-0.8% YoY; 3Q21: -2.2% YoY).

HLIB’s VIEW

On the global front, manufacturing PMI eased in Jan (53.2; Dec: 54.3) reflecting slower new orders, decline in international trade volumes, supply disruptions and rising Covid- 19 infections. While supply constraints persist alongside headwinds from Covid-19 resurgence, robust external demand, particularly for E&E products, is still anticipated to support manufacturing activity in Malaysia. The rebound in 4Q21 IPI is anticipated to contribute positively to 4Q21 GDP growth.

Source: Hong Leong Investment Bank Research - 9 Feb 2022