• IPI growth declined in October due mainly to the fall in mining output despite positive manufacturing and electricity output
• Gradual relaxing of restrictions and SOPs from December 7th onwards will be favourable for economic activity in 4Q20
• We expect real GDP growth to decline at a slower pace of -2.5% yoy for 4Q20 from -2.7% in 3Q20

Decline in IPI growth dragged by contraction in mining output

Malaysia’s industrial production index (IPI) fell into negative territory in October, declining by 0.5% yoy in October, after three consecutive months of positive growth (1.0% in September). This was mainly due to the contraction in mining output, which fell for the eighth month in a row by 10.6% yoy in October (-9.6% in September), dragged by lower production of crude oil and condensate as well as natural gas. However, growth in manufacturing output remained in positive territory, rising for the fifth consecutive month at 2.4% yoy in October, albeit at a slower pace of 4.3% in September. Likewise, electricity output also turned around with a positive growth of 1% in October from -2.1% in September, its first increase since February 2020. On a month-on-month basis, IPI growth rose by 1.7% mom in October (+0.5% in September), even with the re-introduction of targeted CMCO measures in several states attributed partly to less stringent restrictions from the latest containment measures during the month.

Manufacturing output remained positive due to export-oriented industries

Sustained positive growth in manufacturing output was supported mainly by steady production in export-oriented industries. Production of electrical & electronic (E&E) goods increased for the fifth consecutive month by 8.1% yoy in October (9.8% in September), led by all its major subcomponents. This was also reflected in exports of E&E products, which expanded by 3% yoy in October and 33% in September. Meanwhile, output of petroleum, chemical, rubber and plastic products expanded by 1.7% yoy in October (3.2% in September), supported by increases in production of basic pharmaceutical products & pharmaceutical preparations as well as rubber and plastic products. Output of wood products, furniture, paper products and printing rose by 1.5% yoy in October (2.3% in September), due to the higher production of paper and printing, reproduction of recorded media and furniture products. In contrast, output of textiles, wearing apparel, leather products & footwear declined by -2.6% yoy October (-4.1% in September).

For the domestic-oriented industries, production of transportation equipment and other manufactures rose by 3.5% yoy in October (4.5% yoy in September), as reflected in sustained recovery in private consumption and domestic demand.

Source: Affin Hwang Research - 14 Dec 2020