Expect IPI Growth to Contract From March Onwards in 1H2020

Malaysia’s industrial production index (IPI) rose by 5.8% yoy in February from 0.6% in January, significantly higher than market expectations of 0.9%. The IPI growth trended higher due to a rebound in mining output, which rose by 6.1% yoy in February from a decline of 3.9% in January. Meanwhile, growth in electricity output rose to 6.8% yoy in February, from a slight decline of 0.01% in January. Growth in the manufacturing output also rose strongly to 5.6% yoy (2.2% in January), supported by steady growth of both domestic-oriented and export-oriented industries during the month. On a month-to-month basis, IPI growth contracted to 7% in February (0.6% in January), indicating that the higher yoy growth during the month was distorted by low base effect in the corresponding period of last year.

Output in Domestic and Export-oriented Industries Higher in February

In the export-oriented industries, output of petroleum, chemical, rubber and plastic products rose by 6.3% yoy in February (3.6% in January), due to higher production in all its subcomponents. Output of textiles, wearing apparel, leather products and footwear increased by 6.7% yoy in February (3.2% in January) while production of wood products, furniture, paper products and printing also rose by 6.3% yoy in February (3% in January) led by higher output of all its sub-products. As for the domestic-oriented industries, production of food, beverages and tobacco rebounded by 4.5% yoy in February from a decline of 5.5% in January led by the turnaround in output of food and tobacco products. Meanwhile, production of transport equipment and other manufactures rose by 4.9% yoy in February from 1.4% in January.

Production of electrical & electronic (E&E) products expanded for the third consecutive month by 5.1% yoy in February (3.2% in January), supported by higher output growth in all its subcomponents. Despite the rise in output of E&E products, we believe this could be weighed down in the coming months, as exports of E&E products continued to contract for the seventh consecutive month by 2.7% yoy in February (-5.4% in January). In the months ahead, global sales of semiconductors, which rose by 5% yoy in February, are expected to slow sharply from the impact of the COVID-19 pandemic, especially reflecting slower demand from the China market.

Source: Affin Hwang Research - 14 Apr 2020