IPI growth accelerated to +12.1% YoY in Jun (May: +4.1% YoY), exceeding the consensus estimate of +4.9% YoY. This was due to a broad-based improvement across all production sectors, partly aided by low base effect; manufacturing (+14.5% YoY; May: +6.9% YoY), electricity (+14.1% YoY; May: +2.8% YoY) and mining production (+2.1% YoY; May: -4.9% YoY). In 2Q22, IPI accelerated to +6.9% YoY (1Q22: +4.5% YoY).

DATA HIGHLIGHTS

IPI growth accelerated to +12.1% YoY in Jun (May: +4.1% YoY), sharply exceeding the consensus estimate of +4.9% YoY. Production increased across the board, partly aided by low base effect following the strict lockdown in Jun 2021. Manufacturing (+14.5% YoY; May: +6.9% YoY) and electricity production (+14.1% YoY; May: +2.8% YoY) picked up, while mining production rebounded (+2.1% YoY; May: -4.9% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI rebounded (+8.4%; May: -2.9%) following an upturn in mining (+7.1%; May: -4.4%) and manufacturing (+8.9%; May: -2.5%) production, as well as an increase in electricity production (+3.5%; May: +0.5%).

Manufacturing production grew +14.5% YoY (May: +6.9% YoY) supported by both domestic and export-oriented sectors. Stronger growth in the export-oriented sector (+9.4% YoY; May: +6.9% YoY) was consistent with the positive exports momentum during the month (+38.8% YoY; May: +30.4% YoY). Production strengthened for ‘wood products, furniture, paper products, printing’ (+17.3% YoY; May: +8.8% YoY), E&E products (+16.9% YoY; May: +15.6% YoY) and ‘textiles, wearing apparel, leather products & footwear’ (+12.4% YoY; May: +5.0% YoY), while ‘petroleum, chemical, rubber & plastic products’ (+0.3% YoY; May: -1.8% YoY) recorded a rebound.

Meanwhile, the strong showing for the domestic-oriented sector (+29.8% YoY; May: +6.9% YoY) was largely driven by the surge in ‘transport equipment & other manufactures’ (+89.9% YoY; May: +12.4% YoY), mostly due to strong motor vehicles production (+179.3% YoY; May: +14.4% YoY) following the shutdown of motor vehicle production plants in Jun 2021. ‘Non-metallic mineral products, basic & fabricated metal products’ (+25.1% YoY; May: +5.2% YoY) and ‘food, beverages & tobacco’ production (+8.8% YoY; May: +4.7% YoY) also saw an increase.

Mining production rebounded (+2.1% YoY; May: -4.9% YoY), supported by an upturn in natural gas production (+5.5% YoY; May: -3.6% YoY) which offset the continued decline in crude petroleum production (-2.4% YoY; May: -6.7% YoY). On a monthly basis, both natural gas (+1.2%; May: -0.5%) and crude petroleum (+2.1%; May: -0.7%) rebounded.

In 2Q22, IPI rose +6.9% YoY (1Q22: +4.5% YoY). Growth continued to be drive n by manufacturing (+9.3% YoY; 1Q22: +6.3% YoY) and electricity (+5.8% YoY; 1Q22: +3.7% YoY), while mining production declined at a softer pace (-1.1% YoY; 1Q22: - 1.8% YoY).

HLIB’s VIEW

On the global front, manufacturing PMI fell to 51.1 in Jul (Jun: 52.2) as new export orders declined further amid contraction in international trade flows. Nevertheless, the transition to endemicity will remain supportive of the domestic-oriented manufacturing industries. Stronger 2Q22 IPI growth is anticipated to contribute to higher 2Q22 GDP as well. We maintain our expectation for BNM to raise OPR by another 25bps in Sep.

Source: Hong Leong Investment Bank Research - 10 Aug 2022