Industrial Production Index (IPI) eased to a 3-month low of 0.6% YoY in January (Dec 2019:1.3%), matching house estimate but a tad lower than market expectation (consensus: 0.8%)

• The weaker performance was attributable to slower growth in manufacturing, continued in the mining index and a slump in electricity output.
• MoM: eased marginally after a rebound in the previous month (0.6%; Dec: 0.7%).

Manufacturing index growth dipped to a 4-year low of 2.1% in January (Dec: 3.4%)

• Led by weakening in all sub-sectors except for electrical & electronic products (EE) which strengthened to a 6-month high (3.2%; Dec: 3.1%).
• In particular, the slowdown is attributable to a sharp decline in the production of food, beverages & tobacco (FB) (-5.6%, Dec: 0.6%), a 43-month low, followed by transport equipment & other manufactures (TE) (1.4%; Dec: 4.7%), the lowest since Feb 2018.
• MoM: moderated after a recovery in the preceding month (0.3%; Dec: 1.2%)

Mining continued its downtrend, falling by 3.9% YoY but at a slower rate than the previous month (-4.9%)

• The slowdown was broad-based, led by a decline in crude petroleum output (-5.9; Dec: 6.6%), followed by contraction in extraction of crude oil and natural gas (-3.9%; Dec: 4.9%).
• Moving forward, we expect the mining output slowdown to persist due to the OPEC+ failure to agree on additional cuts which led to a sharp drop in oil prices which is expected to continue till April. Likewise, the average Brent crude oil price edged lower in January to USD63.7/barrel from USD65.2/barrel in December.
• MoM: The mining index rebounded after a sharp decline in the previous month (0.8; Dec: -0.9%).

Electricity index (-0.01; Dec: 0.9%): fell marginally for the first time since April 2017 due to a higher base

• On a MoM basis, the index growth expanded by 2.4% (Dec: 0.5%)

Outlook for industrial production to remain gloomy in the immediate term, but with a potential recovery in the 2H20

• This is backed by February’s manufacturing PMI reading that continued to remain in contraction (48.5; Jan: 48.8) and the beginning of Saudi-Russia oil price war. In addition, there is an elevated risk of supply chain disruption as the new COVID-19 wave hits global manufacturing sector. This is reflected in the global manufacturing PMI index which fell by 6.3% to 47.2 in February (Jan: 50.4). Nevertheless, the house expects the manufacturing sector to gradually recover in the 2H20 on a projected upturn in the tech sector, lagged impact from the recent cycle of monetary easing and the stimulus fiscal measures.
• Rising global downside risks to weigh on the economy: we have revised our 2020 GDP growth forecast to 3.1% from 4.0% (2019: 4.3%) given risks of unceasing spread of COVID-19 pandemic and the global oil-price war

Source: Kenanga Research - 16 Mar 2020