IPI growth accelerated to +5.1% YoY in Mar (Feb: +4.0% YoY), beating consensus expectations of +4.8% YoY. Growth was led by manufacturing production (+6.9% YoY; Feb: +5.2% YoY) and slight rebound in mining production (+0.3% YoY; Feb: -0.4% YoY), while electricity production slowed (+0.8% YoY; Feb: +3.6% YoY). In 1Q22, IPI grew at a moderate pace (+4.5% YoY; 4Q21: +6.8% YoY).

DATA HIGHLIGHTS

IPI growth accelerated to +5.1% YoY in Mar (Feb: +4.0% YoY), exceeding consensus expectations of +4.8% YoY, following stronger manufacturing production (+6.9% YoY; Feb: +5.2% YoY) and slight rebound in mining production (+0.3% YoY; Feb: -0.4% YoY). Meanwhile, electricity production slowed (+0.8% YoY; Feb: +3.6% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI dipped slightly (-0.7%; Feb: +5.2%) due to lower mining (-2.1%; Feb: +8.6%) and electricity production (-0.3%; Feb: +2.5%), offsetting marginal growth in manufacturing production (+0.1%; Feb: +4.0%).

Manufacturing production (+6.9% YoY; Feb: +5.2% YoY) was lifted by rebound in both export-oriented and domestic-oriented sectors. Stronger growth in the export-oriented sector (+9.4% YoY; Feb: -6.5% YoY) was consistent with Mar’s export performance (+25.4% YoY; Feb: +16.8% YoY). Within the sector, production increased across the board; E&E (+18.6% YoY; Feb: +12.9% YoY), ‘wood products, furniture, paper products, printing’ (+7.4% YoY; Feb: +4.8% YoY), ‘textiles, wearing apparel, leather products & footwear’ (+5.4% YoY; Feb: +4.8% YoY) and ‘petroleum, chemical, rubber & plastic products’ (+0.1% YoY; Feb: -2.3% YoY).

The domestic-oriented sector also posted a rebound (+6.6% YoY; Feb: -8.5% YoY), driven by ‘non-metallic mineral products, basic & fabricated metal products’ (+5.6% YoY; Feb: +5.3% YoY). This offset moderate production growth for ‘food, beverages & tobacco’ (+4.1% YoY; Feb: +6.6% YoY) and ‘transport equipment & other manufactures’ (+1.7% YoY; Feb: +8.1% YoY), which was dragged by weak motor vehicle production (-0.5% YoY; Feb: +9.9% YoY) due to high base effect.

Meanwhile, mining production registered a slight rebound (+0.3% YoY; Feb: -0.4% YoY), supported by improvement in natural gas production (+5.7% YoY; Feb: +2.6% YoY), which offset the steeper fall in crude petroleum production ( -6.8% YoY; Feb: -4.3% YoY). However, on a monthly basis, both natural gas (+8.8%; Feb: -6.5%) and crude petroleum (+4.9%; Feb: +0.3%) saw an increase in production.

In 1Q22, IPI grew at a moderate pace of +4.5% YoY (4Q21: +6.8% YoY). Growth continued to be driven by manufacturing (+6.3% YoY; 4Q21: +9.2% YoY), followed by electricity (+3.7% YoY; Feb: +4.6% YoY), while mining production continued to decline (-1.8% YoY; 4Q21: -1.2% YoY).

HLIB’s VIEW

On the global front, manufacturing PMI slowed in Apr (52.2; Mar: 52.9), weighed by contraction in output amid Covid restrictions in China, rise in geopolitical tensions and elevated inflationary pressures. Nevertheless, as Malaysia’s domestic economy recovers following the reopening of economic activity and release of pent-up demand, we opine that these factors will support domestic-oriented industries. Consequently, following better-than-expected March economic data release that is anticipated to support 1Q22 GDP further, we now expect BNM to raise OPR by 50bps in 2H 2022 (previous: 25bps).

Source: Hong Leong Investment Bank Research - 11 May 2022