IPI growth moderated further to +3.9% YoY in Feb (Jan: +4.3% YoY), faring slightly below consensus expectations of +4.0% YoY. Growth was supported by modest manufacturing (+5.2% YoY; Jan: +6.8% YoY) and electricity production (+3.9% YoY; Jan: +6.9% YoY), while mining production (-0.4% YoY; Jan: -5.1% YoY) registered a smaller contraction.

DATA HIGHLIGHTS

IPI growth continued to moderate to +3.9% YoY in Feb (Jan: +4.3% YoY), faring slightly below consensus expectations of +4.0% YoY. Manufacturing (+5.2% YoY; Jan: +6.8% YoY) and electricity production (+3.9% YoY; Jan: +6.9% YoY) grew at a more modest pace, while mining production (-0.4% YoY; Jan: -5.1% YoY) registered a smaller contraction (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI rebounded by +5.2% (Jan: -1.5%), driven by upturns across the board; mining (+8.6%; Jan: -0.5%), manufacturing (+4.0%; Jan: - 1.8%) and electricity production (+2.8%; Jan: -0.8%).

In terms of sectors, the moderation in manufacturing production (+3.9% YoY; Jan: +4.3% YoY) mainly stemmed from the export-oriented sector (+4.5% YoY; Jan: +7.2% YoY), consistent with softer exports growth during the month (+16.8% YoY; Jan: +23.9% YoY). Within the sector, slower production was recorded for ‘wood products, furniture, paper products, printing’ (+4.5% YoY; Jan: +8.6% YoY) and ‘textiles, wearing apparel, leather products & footwear’ (+3.7% YoY; Jan: +5.0% YoY). E&E production eased as well (+12.8% YoY; Jan: +14.4% YoY), in line with the decline in Empire State Future Technology Spending Index (29.7; Jan: 31.9). Meanwhile, ‘petroleum, chemical, rubber & plastic products’ fell by -2.3% YoY (Jan: +0.1% YoY).

Production in the domestic-oriented sector accelerated (+6.6% YoY; Jan: +5.8% YoY) on the back of higher motor vehicle production (+9.9% YoY; Jan: +5.0% YoY) under ‘transport equipment & other manufactures’ (+8.4% YoY; Jan: +4.2% YoY). This offset the moderation in ‘food, beverages & tobacco’ (+6.6% YoY; Jan: +6.7% YoY) and ‘non metallic mineral products, basic & fabricated metal products’ production (+5.3% YoY; Jan: +6.2% YoY).

Meanwhile, mining production registered a smaller contraction (-0.4% YoY; Jan: -5.1% YoY), aided by pickup in natural gas production (+2.6% YoY; Jan: +1.6% YoY) and softer decline in crude petroleum production (-4.3% YoY; Jan: -13.9% YoY). However, on a monthly basis, production was dampened by natural gas (-6.5%; Jan: +2.8%) amid a slight rebound in crude petroleum (+0.3%; Jan: -4.0%).

HLIB’s VIEW

On the global front, expansion in manufacturing PMI slowed in Mar (53.0; Feb: 53.7). Output and new orders slowed amid multiple headwinds from pandemic disruptions in China, stretched global supply chains, elevated inflationary pressures and geopolitical tensions. For Malaysia, worsening price and supply pressures could result in unfavourable operating conditions, posing risks to manufacturing activity. Nevertheless, the transition to endemic phase is expected to lend support to the domestic-oriented manufacturing industries, including food and beverage industries. 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 - 12 Apr 2022