• Smaller decline in IPI in June due to manufacturing output, but weighed down by contraction in the electricity and mining output.
• However, on a quarterly basis, the sharp decline in IPI in 2Q20 was across all sectors, with mining output declining at the sharpest level following four consecutive quarters of negative growth.
• For the whole of 2020, we maintain our real GDP growth forecast of -3.5%, lower than the official forecast range of -2.0 to 0.5% (4.7% in 2019).

Sharp decline in mining output cushioned by manufacturing output in June

Malaysia’s industrial production index (IPI) declined for the fourth consecutive month, contracting by 0.4% yoy in June, albeit at a slower pace compared to -21.6% in May. However, growth in manufacturing output recovered and turned around to 4.7% yoy in June, after a sharp decline of 22.6% in May, in line with the increase in exports of manufactured goods, which expanded by 8.8% yoy in June (-25.5% in May). Electricity output declined by 2.4% yoy in June compared to a decline of 10.3% in May. Growth in mining output remained weak, declining by 17.1% yoy in June from -22.2% in May. On a month-on-month basis, the IPI rebounded strongly by 26.2% mom in June (-18.9% in May), with both manufacturing and electricity sectors rebounding during the month. This was attributed mainly to the further re-opening of the economy under the Recovery MCO, which led to resumption of businesses and factory operations.

Both Domestic and Export-oriented Industries Turned Around in June

The rebound in manufacturing output was supported by both domestic and exportoriented industries during the month. Electrical & electronic (E&E) production expanded by 13.2% yoy in June (-11.2% in May), as reflected in all its main subcomponents (i.e., computer, electronics & optical and electrical equipment), in tandem with exports of E&E products, which expanded by 15.9% yoy in June (-19.9% in May). Other export-oriented industries, such as textiles, wearing apparel, leather products and footwear, declined by 9.6% yoy in June (-45.3% in May), but production of wood products, furniture, paper products and printing expanded by 7.1% yoy in June (-39.2% in May), with higher output in almost all of its sub-products. Output of petroleum, chemical, rubber and plastic products rebounded by 1.6% yoy in June (- 21.9% in May), supported by an increase in production of basic pharmaceutical products & pharmaceutical preparations as well as rubber and plastic products. As for domestic-oriented industries, the production of food, beverages and tobacco expanded by 10.5% yoy in June (-2.5% in May), due to higher output of beverages and tobacco products. Production of transport equipment and other manufactures grew by 10.7% yoy in June (-38.5% in May), reflecting a recovery in private consumption and domestic demand from June.

Source: Affin Hwang Research - 10 Aug 2020