Economists upbeat on Malaysia’s Industrial Production Index growth on strong external demand

A bird's-eye view of Kuala Lumpur July 8, 2020. — Picture by Hari Anggara
A bird's-eye view of Kuala Lumpur July 8, 2020. — Picture by Hari Anggara

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KUALA LUMPUR, April 9 — Malaysia’s Industrial Production Index (IPI) growth in the first two months of the year shows that the external environment has been constructive for the domestic economy.

The IPI, which is a monthly economic indicator measuring real output in the manufacturing, mining, electricity, and gas industries, rose 1.5 per cent year-on-year in February 2021, propelled by a 4.5 per cent rise in the manufacturing index.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the higher exports volume in February, which grew 17.6 per cent, had also translated into a continued positive print in IPI growth.

“So far, the manufacturers’ sentiment has been positive globally,” he told Bernama today.

Moreover, he said the United States Institute for Supply Management index for the manufacturing sector jumped to 64.7 points in March, suggesting the world’s largest economy has been on track to record a strong recovery, alongside sustained policy support from both fiscal and monetary policies.

“This, in turn, should help Malaysia’s external demand especially in areas relating to the electrical and electronics (E&E) products sector,” he opined.

Mohd Afzanizam expected the external sector to provide the needed support to the overall Malaysian economy, supported by the World Semiconductor Trade Statistics that has projected global semiconductor sales to grow by 10.9 per cent in 2021 from 6.8 per cent in 2020.

Hence, he said the IPI growth for 2021 should project a better growth compared to last year, in tandem with the expected economic recovery globally and domestically.

Echoing similar sentiments, Sunway University Business School economist Prof Dr Yeah Kim Leng said the IPI would likely increase sharply over the next few months, ranging between four and five per cent, in line with the strengthening of both external and domestic demand.

“The growth suggests a continuous recovery in Malaysia’s economy although the pace is not strong enough to project a sharp recovery,” he said.

Nevertheless, Yeah said the government’s vaccination initiatives play a crucial role to support the recovery and contain the pandemic quickly.

Data from the Department of Statistics Malaysia also showed that export-oriented industries drove the manufacturing sector’s growth by 5.8 per cent, while domestic-oriented industries increased by 1.8 per cent in February 2021.

On a separate note, Moody’s Analytics expects industrial production to pick up in the coming months as a result of robust external demand and low base effect from the previous year.

“Sustained growth in external demand will continue to bolster the production outlook for trade-oriented industries, given the strong demand for E&E and rubber products, as well as better economic prospects for major trading partners such as the US and China,” it said.

Meanwhile, RHB Research said the IPI would see much strength coming from the domestic-oriented industries amid the pent-up demand alongside the support from the E&E sector. — Bernama

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