● Industrial Production Index (IPI) slowed to a 5-month low in February (3.9%%;Jan: 4.3%), registering slightly below house and market expectations (KIBB: 4.2%; consensus: 4.0%)

- Moderation is attributable to a further slowdown in the manufacturing and electricity indexes, which outweighed a smaller decline in the mining index. Nonetheless, sustained growth was mainly due to a persistently low base from February 2021.

- MoM (-6.6%; Jan: -1.2%): declined to its lowest level in nearly two years, amid a seasonal downturn, the rise in domestic Omicron cases, and the Chinese New Year holidays in early February. Of note, external demand was particularly weighed by the resurgence of COVID-19 infections globally.

● Manufacturing index growth slowed for the third straight month (5.2%; Jan: 6.8%), in line with a further moderation in exports growth (16.8%; Jan: 23.5%) and manufacturing sales growth (11.2%; Jan: 13.1%)

- Moderation was primarily attributable to a growth contraction of petroleum, chemical, rubber & plastic products (-2.3%; Jan: 0.1%), its lowest level in 21-months, along with a slowdown in electrical & electronic products (12.8%; Jan: 14.4%).

- MoM (-7.2%; Jan: -1.7%): declined to a 22-month low, affected by persistent lower capacity utilisation in the manufacturing sector, especially in the non-metallic mineral, basic metal & fabricated metal, and food, beverages & tobacco sub-sectors.

● Mining index contraction eased in February (-0.4%; Jan: -5.1%), reaching a 3-month high, but mainly due to a low base effect

- Attributable to a softer decline in the extraction of crude oil & natural gas (-0.4%; Jan: -5.1%), and output of crude petroleum (-4.3%: Jan: -13.9%), along with a further expansion in natural gas production (2.6%; Jan:1.6%);amidhigherglobal oil prices in February (USD97.1/barrel; Jan: USD86.5/barrel).

- MoM (-3.8%; Jan: -0.02%): declined to a 5-month low.

● Electricity index moderated to 3.9% (Jan: 6.9%), its lowest level in 5-months.

- MoM (-8.4%; Jan: -0.2%): declined considerably to an 8-month low, partly due to a shorter working period over the holidays.

● 2022 manufacturing index forecast retained at 7.0% (2021: 9.5%)

- Manufacturing output will likely remain pressured in the near-term, especially amid heightened external risks coming from prolonged global supply chain issues, China’s COVID-19 lockdown measures, and the ongoing Russia-Ukraine conflict; this is evident from Malaysia’s PMI falling into contraction in March (49.6; Feb: 50.9). On the other hand, domestic demand should continue recovering as local COVID-19 cases decline and following the recent reopening of international borders.

- With that said, we maintain our 2022 GDP growth forecast between 5.0 – 5.5% (2021: 3.1%), expecting Malaysia to maintain its recovery momentum as it transitions into the endemic phase, but also accounting for lingering external risks to growth.

Source: Kenanga Research - 12 Apr 2022