• Turnaround in IPI in July was due to expansion in manufacturing output and slower decline in mining, but electricity output continued to contract.
• We expect growth in the manufacturing sector to continue to recover in 2H20 led by the resumption of economic activity under the RMCO phase.
• Our estimates show that real GDP will likely decline at a gradual pace of around 0.8% yoy in 2H20 and average around -4.5% for full-year 2020

Turnaround in IPI Led by Manufacturing and Slower Decline in Mining

Following four consecutive months of declines, Malaysia’s industrial production index (IPI) turned around and increased by 1.2% yoy in July (0.4% in June), its first positive growth since February 2020. During the month, growth in manufacturing output expanded for the second consecutive by 2.9% yoy in July, albeit at a slower pace of 4.7% in June. This was in line with the increase in exports of manufactured goods, which rose by 4.7% in July (15.9% in June). However, as for mining, output declined by 3% yoy in July (-17.1% in June), while electricity output declined further by 5.1% yoy in July compared to -2.4% in June. On a month-on-month basis, IPI growth slowed sharply to 1.2% yoy in July (26.3% in June), as all sub-sectors continued to expand at a slower pace during the month.

Mixed Performance of Domestic and Export-oriented Industries in July

The sustained positive growth of manufacturing output was led by some domesticoriented industries, such as food, beverages, and tobacco, which increased by 3.6% yoy in July (10.5% in June) led by production of food, and tobacco. Meanwhile, production of transportation equipment and other manufactures rose by 9% yoy in July (10.7% in June) supported by sustained recovery in private consumption and domestic demand. However, output of non-metallic mineral products contracted by 9.8% yoy in July (-14.2% in June), due to declines in production of other non-metallic mineral products & fabricated metal products.

As for export-oriented industries, production of electrical & electronic (E&E) increased by 9.6% yoy in July (13.2% in June), led by all its main subcomponents. In July, exports of E&E products expanded by 9.2% yoy (15.9% in June). Other export-oriented industries, such as wood products, furniture, paper products and printing expanded by 0.8% yoy in July (7.3% in June), underpinned by all its subcomponents, except for wood and wood & cork products. Meanwhile, output of petroleum, chemical, rubber and plastic products held steady at 1.5% yoy in July for the second consecutive month, supported by an increase in production of basic pharmaceutical products & pharmaceutical preparations as well as rubber and plastic products. In contrast, output of textiles, wearing apparel, leather products & footwear declined further by 12.9% yoy in July (-9.6% in June).

Source: Affin Hwang Research - 14 Sept 2020