IPI growth continued to moderate to +4.3% YoY in Jan (Dec: +5.9% YoY), missing consensus expectations of +5.1% YoY. The moderation was attributed to softer manufacturing growth (+6.8% YoY; Dec: +8.4% YoY) and steeper decline in mining production (-5.1% YoY; Dec: -2.6% YoY), which offset the pickup in electricity production (+7.7% YoY; Dec: +4.7% YoY).

DATA HIGHLIGHTS

IPI growth continued to moderate to +4.3% YoY in Jan (Dec: +5.9% YoY), missing consensus expectations of +5.1% YoY. Mining production registered a steeper contraction (-5.1% YoY; Dec: -2.6% YoY), while manufacturing softened (+6.8% YoY; Dec: +8.4% YoY). This offset the pickup in electricity production (+7.7% YoY; Dec: +4.7% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI weakened (-1.4%; Dec: -0.4%) following lower production across the board; manufacturing (-1.8%; Dec: -0.4%), mining (-0.5%; Dec: +1.6%), electricity (-0.02%; Dec: +0.4%). The weaker manufacturing production was attributed to lower capacity utilisation, especially in E&E products and food, beverages and tobacco products subsectors.

Manufacturing production eased (+6.8% YoY; Dec: +8.4% YoY) following moderation in both domestic and export-oriented sectors. Softer export-oriented production (+7.2% YoY; Dec: +9.4% YoY) was in line with Jan’s exports performance (+23.5% YoY; Dec: +29.2% YoY). Within the sector, production increased for ‘textiles, wearing apparel, leather products & footwear’ (+5.0% YoY; Dec: +4.2% YoY). ‘Wood products, furniture, paper products, printing’ (+8.6% YoY; Dec: +6.5% YoY) accelerated as well, lifted by strong external demand for furniture and other wood-based products. However, the sector’s growth was dampened by ‘petroleum, chemical, rubber & plastic products’ (+0.1% YoY; Dec: +2.1% YoY) and E&E products (+14.4% YoY; Dec: +18.2% YoY).

Domestic-oriented sector production also eased (+5.8% YoY; Dec: +6.1% YoY) as the moderation in ‘food, beverages & tobacco’ production (+6.7% YoY; Dec: +10.2% YoY) offset the pickup in ‘non-metallic mineral products, basic & fabricated metal products’ (+6.2% YoY; Dec: +5.3% YoY) and ‘transport equipment & other manufactures’ (+4.2% YoY; Dec: +1.3% YoY), which saw higher motor vehicle production (+5.0% YoY; Dec: - 1.7% YoY) after the flood situation in the previous month.

Mining production declined at a steeper pace (-5.1% YoY; Dec: -2.6% YoY) on the back of weaker crude petroleum production (-13.9% YoY; Dec: -6.4% YoY), offsetting the improvement in natural gas (+1.6% YoY; Dec: +0.2% YoY). Crude petroleum also fell on a monthly basis (-4.0%; Dec: +2.5%), owing to an unplanned maintenance exercise at the Gumusut-Kakap oilfield. Natural gas production moderated to +2.8% (Dec: +3.5%).

HLIB’s VIEW

On the global front, the manufacturing sector remained in expansionary mode, with manufacturing PMI recording a slight improvement in Feb (53.6; Jan: 53.2) on faster rates of output and new orders. For Malaysia, the rise in Omicron-related cases in early part of 2022 could lead to moderation in economic activity due to quarantine requirements. Nevertheless, going forward, the decision to transition into endemicity which allows longer operation hours for businesses and reopening of international borders are expected to support the domestic-oriented sectors. However, with the recent escalation of geopolitical tensions and its potential adverse effect on global growth, we maintain our expectation for BNM to increase the OPR by 25bps in 4Q22.

Source: Hong Leong Investment Bank Research - 14 Mar 2022