● Industrial Production Index (IPI) growth eased in August, halting the improvement seen in the last three months (0.3% YoY; house estimate: -2.8%; consensus: 0.1%; Jul: 1.2%)

- Reflecting weakness in economic activities amid a flare-up in COVID-19 cases in major economies.

- MoM (-1.2%; Jul: 1.3%): contracted for the first time in four months.

● Manufacturing index registered its softest expansion in three months (2.4%; Jul: 2.9%), similar to the moderation in manufacturing sales growth (1.7%; Jul: 1.9%)

- Attributable to a slower growth in the production of electrical & electronic products (6.9%; Jul: 9.8%) and food, beverages & tobacco (4.7%; Jul: 6.3%), as well as a plunge in the production of wood products, furniture, paper products & printing (-2.5%; Jul: 0.8%).

- MoM (-1.9%; Jul: 0.2%): slipped back into contraction, after three straight months of expansion.

● Mining index contraction worsened to -6.7% YoY (Jul: -3.0%)

- Broad-based slowdown, led by the extraction of crude oil and natural gas (-6.7%; Jul: -3.0%), followed by further drop in natural gas (-8.0%; Jul: -4.4%) and crude petroleum output (-5.0%; Jul: -1.2%).

- The mining output slowdown may persist as the average Brent crude oil price registered a downtrend, falling to USD40.9/barrel in September (Aug: USD44.7/barrel).

- MoM: expansion moderated to a four-month low 0.3% (Jul: 2.4%)

● Electricity index fell by less (-1.2; Jul: -5.0%) on the absence of a high base effect

- MoM (2.9%; Jul: 4.2%): growth eased to a two-month low.

● The global resurgence of COVID-19 cases clouds the prospect of a recovery in the industrial production

- The retightening of lockdown measures amid a resurgence of COVID-19 infections, locally and globally, may interrupt factory operations, weigh on sentiment and derail an already-fragile recovery in external demand.

- Against this backdrop, we retain our manufacturing IPI projection of -7.7% in 2020 (2019: 3.6%) in tandem with this year’s projected -5.9% decline in GDP (2019: 4.3%).

Source: Kenanga Research - 13 Oct 2020