KUALA LUMPUR, June 11 — MIDF Research has revised down its 2020 forecast of Malaysia’s Industrial Production Index (IPI) performance to a contraction of 5.4 per cent from its initial estimate of a 2.8 per cent reduction.
This was due to the larger-than-expected fall in April and anticipation of a slow recovery amid the challenging domestic and external environments, it said.
Earlier today, the Statistics Department announced that overall IPI slumped 32 per cent year-on-year (y-o-y) in April, the steepest fall on record and worse than market expectation, as all sub-indexes registered a double-digit drop due to the movement control order (MCO) aimed at containing the spread of Covid-19.
MIDF Research said year-to-date, IPI contraction averaged at 7.5 per cent y-o-y.
“Covid-19, a slowdown in global demand and lower global oil prices affect Malaysia’s industrial output and exports. Our in-house average Brent crude oil price for this year is US$41 (RM174) per barrel. The re-escalation of US-China trade spat will also influence the production and trade flows,” it said in a statement today.
Nevertheless, lower overnight policy rate, and government stimulus package, which includes a loan moratorium, additional financial aids to companies and wage subsidy, would provide some support to the continuous production, it added.
MIDF said the IPI performance was forecast to remain weak in upcoming months albeit at improving rate, in line with easing restrictions and opening up of the economy.
As for the second quarter of 2020, the research house viewed that export-oriented sectors would continue on a weaker note due to the Covid-19 fear effect, fluctuation in commodity prices, and off-peak cycle for semiconductor industry.
Lockdowns in major economies globally would lower demand, hence dragging down Malaysia’s export performance in the quarter, it added.
“As of the second half of 2020, we expect to see vibrant improvement underpinned by betterment in commodity prices, subsiding Covid-19 fear effects, and gradual rebound in global demand,” said MIDF Research.
The lower IPI in April was in line with the country’s external trade performance. Exports dived 23.8 per cent y-o-y during the month, the hardest fall since September 2009, manifesting the impact of a full month of the MCO.
Domestic exports, which involved high value-added activities, shrank by 35.4 per cent y-o-y, dragged down by deteriorating performances of commodity-based sectors and electrical and electronics. — Bernama
