● Industrial Production Index (IPI) growth gainedin September (1.0% YoY; Aug: 0.2%), matching house estimatebut lower than consensus (KIBB: 1.0%; consensus: 2.3%)

− Suggests a sustained recovery in demand despite a resurgence of COVID-19 cases and new lockdown measures globally.

− MoM (0.5%; Aug: -1.3): rebounded from last month’s contraction.

− 3Q20 (0.8%; 2Q20: -17.9%): rebounded from a steep contraction in the previous quarter, signalling an improved economic activity.

● Manufacturing index growth accelerated to a three-month high (4.3%; Aug: 2.2%), in line with an expansion in manufacturing sales growth (3.7%; Aug: 1.6%)

− Attributable to broad-based growth in almost all subsectors, led by electrical & electronic products (9.8%; Aug: 7.1%), petroleum, chemical, rubber & plastic products (3.2%; Aug: 1.7%), and wood products, furniture, paper products & printing (2.3%; Aug: -2.5%).

− MoM (2.1%; Aug: -2.1%): rebounded to a three-month high after slipping into contraction last month.

● Mining index contraction worsened to -9.6% YoY (Aug: -6.7%), marking seven straight months of contraction

− Attributable to a broad-based slowdown, especially weighed by the extraction of crude oil & natural gas (-9.6%; Aug: -6.7%), followed by declines in crude petroleum (-9.7%; Aug: -5.0%) and natural gas (-9.5%; Aug:-8.0%).

− We expect the contraction in mining output to persist due to poor demand stemming from the pandemic. Additionally, oil prices have remained weak with Brent Crude oil eased to USD40.2/barrel in October (Sep: USD40.9/barrel).

− MoM: growth plummeted to a five-month low (-4.1%; Aug: 0.3%).

● Electricity index fell further (-2.1%; Aug: -1.1%), marking seven months in negative territory

− MoM (-3.7%; Aug: 3.0%): first contraction in five months.

● Despite the disruption from a global resurgence in COVID-19 cases, industrial production may keep its recovery momentum going

− The surge in COVID-19 infections may have disrupted factory operations and weighed on sentiment. However, external demand appears to be recovering, as evidenced by the unexpected rebound in Malaysian exports for September (13.6%; Aug: -2.9%), which raises optimism for a sustained recovery in production.

− Consequently, we have revised manufacturing IPI forecast to -2.9% in 2020 (previous forecast: -7.7%; 2019: 3.6%). We also revised 3Q20 GDP growth projection to -4.6% (previous forecast: -6.2%) which bring the overall GDP growth to settle at -5.5% in 2020 (previous forecast: -5.9%; 2019: 4.3%).

Source: Kenanga Research - 10 Nov 2020