Industrial production index on course for rebound
KUCHING: Analysts maintained their projection that the industrial production index (IPI) will grow in 2021 compared to minus 4.4 per cent in 2020 as firms increase production to cope with the recovery in demand.
It said the IPI performance has been improving in recent months, boosted by the resumption of business activity and sustained growth in external demand.
“Meanwhile, recent data also showed that there was an increase in output of consumer products following the gradual recovery in domestic consumer spending boosted by the relaxation of lockdown restrictions,” said MIDF Research.
While factory activity is expected to pick up further as indicated by the uptrend in Malaysia’s manufacturing PMI, MIDF Research kept a cautious view on the negative impacts from the ongoing global supply chain challenges, rising costs of production and high commodity prices.
Moreover, a potential weakness in external demand from slower growth in major trading partner economies may influence the export-oriented output, it added.
“However, the strong global demand for electrical and electronics as well as commodities will support for growing output going forward,” said MIDF Research.
In September 2021, Malaysia’s industrial output rebounded to 2.5 per cent year-on-year, marking the first growth after two months of contraction, broadly in line with MIDF Research’s expectation for improved production activity in view of stronger exports growth and further reopening of the economy.
Kenanga Investment Bank Bhd (Kenanga Research) also expect growth in manufacturing output to sustain its momentum 4Q21, as Malaysia transitions into the endemic phase of Covid-19. This will be supported by an expected release of pent-up domestic demand and sustained growth in external demand towards the end of the year.
However, downside risks remain given prolonged global supply chain disruptions.
“We estimate 3Q21 gross domestic product (GDP) growth to register minus 1.4 per cent this Friday, as a result of the nationwide movement control measures to stem the resurgence of Covid-19,” it added.
“Meanwhile, we have retained our 2021 GDP growth forecast at 3.5 to four per centand we project 2022 GDP growth to further expand to 5.5 to six per cent.”
Public Investment Bank Bhd (PublicInvest Research) added that a rebound in IPI will be further pushed by base effect advantages and favourable external conditions which are a boon for the manufacturing component.
“IPI will also be supported by expansionary global fiscal strategies (until 4Q21) and accommodative interest rate environment (until the first half of 2022) that will boost consumption activity and therefore demand for manufacturing and mining goods.
“Electricity output may also rebound, consistent with a revival in industrial activities which is set to reach its full potential in the 4Q. The expected turnaround in the headline index forms the basis of our sanguine IPI outlook though we remain cautious given the risks of outbreak in workplaces apart from labor shortages facing the manufacturing sector.
“The prolonged supply chain disruption given shortages in raw material and containers could also dampen the full turnaround of the sector and therefore, the headline index.”