● Industrial Production Index (IPI) moderatedto a 3-month lowin May (4.1%; Apr: 4.6%), registering below house and market expectations (KIBB: 5.4%; consensus: 6.2%)

- Attributable to a deeper YoY contraction in the mining index, which outweighed expansions in the manufacturing and electricity indexes.

- MoM (-1.0%; Apr: -4.8%): smaller growth contraction across the manufacturing and mining components, whilst the electricity index returned to growth.

● Manufacturing index growth accelerated in May (6.9%; Apr: 6.2%), in line with a sharp expansion in exports growth (30.5%; Apr: 20.8%) and manufacturing sales growth (15.7%; Apr: 13.2%), but mainly due to a low base effect

- The expansion was primarily driven by stronger growth of electrical & electronic products (15.5%; Apr: 14.2%) and transport equipment & other manufactures (12.4%; Apr: 5.8%), which reached its highest level in 9-months.

- MoM (-1.3%; Apr: -4.9%): softer contraction but still affected by lower capacity utilisation especially in food, beverages and tobacco products and non-metallic mineral products, basic metal, and fabricated metal products subsectors.

● Mining index recorded its deepest contraction in 4-months (-4.9%; Apr: -0.1%), but mostly due to a high base effect

- Attributable to a broad-based decline among the extraction of crude oil & natural gas (-4.9%; Apr: -0.1%), the output of crude petroleum (-6.7%; Apr: -0.8%), and in natural gas production (-3.6%; Apr: 0.3%); despite higher global oil prices (USD113.1/barrel; Apr: USD104.9/barrel).

- MoM (-0.6%; Apr: -5.3%): growth contraction eased in May on higher oil prices.

● Electricity index rose to 2.8% (Apr: 1.5%), its highest level in 3-months

- MoM (1.5%; Apr: -2.2%): returned to an expansion in May on the impact of reopening of the economy on April 1.

● 2022 manufacturing index forecast revised down to 5.5% from 7.0% previously (2021: 9.5%)

- Manufacturing index growth may settle slightly lower this year following deeper-than-expected contractions in April and May, on weaker external trade due to the prolonged global supply chain issues amid China’s extended lockdowns and the Russia-Ukraine war. Nonetheless, we still expect manufacturing growth to be underpinned by strong domestic demand and this has been signalled by a slight improvement in Malaysia’s PMI in June (50.4; May: 50.1).

- We retain our 2022 GDP growth forecast between 5.0 – 5.5% (2021: 3.1%), on expectations of strong domestic demand and trade recovery as China continues to ease restrictions. However, our projection considers lingering downside risks related to global supply chain issues and a global recession as major central banks continue to aggressively tighten monetary policy.

Source: Kenanga Research - 12 Jul 2022