IPI growth moderated to +4.6% YoY in Apr (Mar: +5.1% YoY), weaker than consensus expectations of +5.5% YoY. The moderation was attributed to a decline in mining production (-0.1% YoY; Mar: +0.3% YoY) and slower growth in manufacturing (+6.2% YoY; Mar: +6.9% YoY), which offset the pickup in electricity production (+1.5% YoY; Mar: +0.8% YoY).

DATA HIGHLIGHTS

IPI growth moderated to +4.6% YoY in Apr (Mar: +5.1% YoY), weaker than consensus expectations of +5.5% YoY. Mining production returned to a contraction (-0.1% YoY; Mar: +0.3% YoY), while manufacturing production softened (+6.2% YoY; Mar: +6.9% YoY). This offset the pickup in electricity production (+1.5% YoY; Mar: +0.8% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI recorded marginal growth of +0.03% (Mar: -0.7%) driven by an upturn in mining (+1.9%; Mar: -2.1%), offsetting the decline in both manufacturing (-0.3%; Mar: +0.1%) and electricity production (-1.1%; Mar: -0.3%).

In terms of sectors, the moderation in manufacturing production (+6.2% YoY; Mar: +6.9% YoY) mainly stemmed from the slowdown in the export-oriented sector (+6.8% YoY; Mar: +8.3% YoY), consistent with softer exports growth during the month (+20.7% YoY; Mar: +25.3% YoY). Within the sector, ‘petroleum, chemical, rubber & plastic products’ recorded a decline (-1.2% YoY; Mar: +0.1% YoY) owing to lower production of coke, refined petroleum, rubber and plastic. Meanwhile, softer production was recorded for E&E products (+14.2% YoY; Mar: +18.6% YoY) and ‘textiles, wearing apparel, leather products & footwear’ (+4.7% YoY; Mar: +5.4% YoY). These offset higher production of ‘wood products, furniture, paper products & printing’ (+10.1% YoY; Mar: +7.4% YoY).

Production in the domestic-oriented sector picked up (+5.0% YoY; Mar: +4.0% YoY), driven by stronger growth in ‘transport equipment & other manufactures’ (+5.8% YoY; Mar: +1.7% YoY) which saw a rebound in motor vehicle production (+5.1% YoY; Mar: -0.5% YoY), as well as higher growth for ‘food, beverages & tobacco’ production (+4.3% YoY; Mar: +4.1% YoY). This offset the moderation in ‘non-metallic mineral products, basic & fabricated metal products’ (+5.1% YoY; Mar: +5.6% YoY).

Meanwhile, mining production (-0.1% YoY; Mar: +0.3% YoY) declined on the back of a slowdown in natural gas production (+0.3% YoY; Mar: +5.7% YoY) and continued decline in crude petroleum (-0.8% YoY; Mar: -6.8% YoY), albeit at a slower pace. On a monthly basis, both natural gas (-6.8%; Mar: +8.8%) and crude petroleum (-3.2%; Mar: +4.9%) saw a decrease in production.

HLIB’s VIEW

On the global front, manufacturing PMI rose to 52.4 in May, little changed from the 20- month low of 52.3 in Apr, reflecting continued supply chain disruptions, elevated inflationary pressures, prolonged geopolitical tensions and the downturn in Chinese manufacturing due to the country’s lockdowns. For Malaysia’s case, despite the less-than-favourable external conditions, the reopening of international borders and transition to the endemic phase are expected to lend support to the domestic-oriented manufacturing industries. We maintain our expectation for BNM to raise OPR by 50bps in 2H22.

Source: Hong Leong Investment Bank Research - 13 Jun 2022