• IPI growth remained in positive territory in August due to expansion in manufacturing output but mining and electricity declined during the month.
• Manufacturing sector growth likely to continue to recover gradually in 2H20 supported by healthy demand for E&E products
• We expect real GDP growth to decline at a smaller magnitude in 2H20 and average around -4.5% for full-year 2020

IPI Growth Supported by Steady Manufacturing Output

Malaysia’s industrial production index (IPI) maintained a positive growth for the second consecutive month in August, expanding by 0.3% yoy from 1.2% in July. In particular, growth in manufacturing output expanded for the third consecutive month by 2.4% yoy in August, albeit at a slower pace from 2.9% in July. However, mining output declined for the sixth straight month at a faster pace of 6.7% yoy in August (- 3% in July) due to lower production of crude oil and condensate as well as natural gas. Meanwhile, electricity output declined at a slower pace of 1.2% yoy in August compared to -5% in July. However, on a month-on-month basis, IPI growth declined for the first time since April 2020 by 1.2% mom in August (+1.3% in July).

Slower production in some domestic and export-oriented industries in August

Slower growth in manufacturing output was reflected in production of some domestic and export-oriented industries. For the domestic-oriented industries, food, beverages, and tobacco increased by 4.7% yoy in August, albeit lower than 6.3% in July. However, production of transportation equipment and other manufactures rose at a higher rate of 6.9% yoy in August (4.8% in July) supported by sustained recovery in private consumption and domestic demand. However, output of non-metallic mineral products contracted by 6.3% yoy in August (-9.8% in July), 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 for the third consecutive month by 6.9% yoy in August (9.8% in July), led by all its main subcomponents. This was also reflected in exports of E&E products, which expanded by 7.6% yoy in August (9.2% in July). Meanwhile, output of petroleum, chemical, rubber and plastic products expanded by 1.7% yoy in August from 1.5% in July, supported mainly by increases 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 by 11.0% yoy in August (-12.9% in July). Similarly, output of wood products, furniture, paper products and printing fell by 2.5% yoy in August (+0.8% in July), mainly due to lower manufacture of wood and products of wood and cork.

Source: Affin Hwang Research - 13 Oct 2020