IPI improves in December as activities pick up
KUALA LUMPUR: Malaysia’s industrial production index (IPI) picked up in December after two months of declines, with improvements seen in all three major segments – manufacturing, mining and electricity – reporting a month-on-month (m-o-m) increase.
Manufacturing led growth, with electronics production rising because of increased demand from China and Singapore.
“The full-year reading for the industrial production index saw a 4.2 per cent decline in 2020. This marks the worst yearly decrease since the global financial crisis in 2009,” opined Moody’s Investor Service in a note yesterday.
It said optimism due to vaccine rollouts and supply cuts by the Organisation of Petroleum Exporting Countries (Opec) have buoyed oil prices to near prepandemic levels. Nonetheless, renewed lockdown measures in Asia and Europe might weigh down on the demand for oil in the coming months.
“The domestic situation has also worsened, with Prime Minister Tan Sri Muhyiddin Yassin extending strict lockdown measures until February 18,” it added. “The extension covers the Lunar New Year period, which will crush domestic demand.
“Lockdowns in Europe and Asia are still in place, even as countries race to roll out vaccines. Although Malaysia and other Asian countries managed to quickly subdue the initial wave of the virus, it appears that widespread vaccine distribution is necessary for a sustained rebound in the region.”
Looking ahead, MIDF Amanah Investment Bank Bhd (MIDF Research) has forecast the IPI to rebound by 6.3 per cent in 2021 compared with a contraction of 4.2 per cent in 2020 as production activity continues to recover last year’s pandemic-induced slowdown.
For the early part of 2021, the investment bank expects the second movement control order (MCO 2.0) to have some impact on production as clusters found in the workplace could hurt production activity for the affected companies.
“The domestic-oriented industrial output, in particular, would be hit by the weaker outlook for domestic consumption as a result of prolonged MCO 2.0 restrictions enforced in almost all states,” it said in a note.
On the other hand, the production outlook for tradeoriented industries production will be positive, benefiting from growing external demand.
For the overall 2021, the IPI is projected to rebound this year supported by the recovering demand both from domestic and external markets.
“The rollout of Covid-19 vaccination programme locally and globally will help to improve confidence, and the stronger growth in major trading partners such as the US and China will support Malaysia’s exports and industrial production activity (is expected) to pick up this year,” it added.
The investment bank expects manufacturing sales could experience some drag in the early part of 2021 in view of MCO 2.0 imposed from mid-January 2021 as tighter restrictions to contain the surging Covid-19 cases would further hurt sentiment and spending plans.
However, MIDF Amanah foresees the negative impact from MCO 2.0 would be partly cushioned by growing business demand for intermediate goods as businesses are allowed to operate, while growing external demand will drive sales of parts and components especially for the electrical and electronics sector.
“Nevertheless, we expect sales to rebound this year from the low base in 2020. For the whole year 2020, manufacturing sales fell by 2.2 per cent (2019: +5.0 per cent) as demand weakened as a result of restrictions imposed to contain the Covid19 outbreak,” it added.