IPI growth accelerated to +12.5% YoY in Jul (Jun: +12.1% YoY), however missed consensus expectations of +15.2% YoY. Growth was supported by stronger manufacturing production (+14.9% YoY; Jun: +14.4% YoY) and mining production (+3.2% YoY; Jun: +2.1% YoY), aided by low base effect. Meanwhile, electricity production recorded a slight moderation (+13.2% YoY; Jun: +15.4% YoY).

DATA HIGHLIGHTS

IPI growth picked up to +12.5% YoY in Jul (Jun: +12.1% YoY), however miss ed consensus expectations of +15.2% YoY. Growth was supported by stronger manufacturing production (+14.9% YoY; Jun: +14.4% YoY) and mining production (+3.2% YoY; Jun: +2.1% YoY), aided by the low base effect. Meanwhile, electricity production recorded a slight moderation (+13.2% YoY; Jun: +15.4% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI sank (-3.9%; Jun: +8.4%), following a downturn in production in all sectors; manufacturing (-6.4%; Jun: +8.8%), mining (-2.7%; +7.1%), and electricity production (-4.2%; +4.6%).

Manufacturing production accelerated to +14.9% YoY (Jun: +14.4% YoY), lifted by the stronger growth in the export-oriented sector, while the domestic-oriented sector registered a slight moderation. The strong export-oriented sector growth (+10.5% YoY; Jun: +9.4% YoY) was consistent with the robust exports growth during the month (+38.0% YoY; Jun: +38.7% YoY). Within the sector, production strengthened across the board; ‘wood products, furniture, paper products, printing’ (+27.8% YoY; Jun: +17.3% YoY), ‘textiles, wearing apparel, leather products & footwear’ (+17.9% YoY; Jun: +12.4% YoY), E&E products (+17.3% YoY; Jun: +16.9% YoY), as well as ‘petroleum, chemical, rubber & plastic products’ (+1.0% YoY; Jun: +0.3% YoY).

Meanwhile, the domestic-oriented sector recorded a slower growth (+27.4% YoY; Jun: +29.4% YoY), albeit still robust. Growth was dragged by softer non-metallic mineral products, basic & fabricated metal products’ (+23.9% YoY; Jun: +25.1% YoY). ‘Transport equipment & other manufactures’ production (+73.6% YoY; Jun: +89.9% YoY) also registered slower growth, mostly due to a slowdown in motor vehicles production (+129.9% YoY; Jun: +179.3% YoY) during the month. Meanwhile, ‘food, beverages & tobacco’ production picked up (+11.2% YoY; Jun: +7.8% YoY).

Mining production gained momentum (+3.2% YoY; Jun: +2.1% YoY), on the back of higher natural gas production (+12.6% YoY; Jun: +5.5% YoY) which offset the further decline in crude petroleum production (-8.6% YoY; Jun: -2.4% YoY). On a monthly basis, production in crude petroleum sank (-7.6%; Jun: +2.1%), while natural gas eased (+0.3%; Jun: +1.2%).

HLIB’s VIEW

On the global front, global manufacturing PMI eased to 50.3 in Aug (Jul: 51.1). New order intakes continued to decline, while an easing of backlogs along with increasing stocks points to a possible build-up of excess capacity at factories. International trade flows also weakened further, following a contraction in new export orders for the sixth straight month. Despite the clouded global outlook, Malaysia’s domestic-oriented manufacturing industries is expected to remain resilient, benefitting from the ongoing economic recovery. We maintain our expectation for BNM to pause in Nov, keeping the OPR unchanged at 2.5% until year-end.

Source: Hong Leong Investment Bank Research - 12 Sept 2022