AmBank Research sees Malaysia's IPI growth flagging despite robust showing in May

A worker is seen at his station at Mapo Industries Sdn Bhd’s plastic container manufacturing plant in Port Klang July 8, 2021. — Picture by Miera Zulyana
A worker is seen at his station at Mapo Industries Sdn Bhd’s plastic container manufacturing plant in Port Klang July 8, 2021. — Picture by Miera Zulyana

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KUALA LUMPUR, July 13 — Malaysia's industrial production remained strong in May 2021 but the robust growth may not be sustainable, according to AmBank Research.

It noted that the Industrial Production Index (IPI) growth slowed down during the month with a smaller increase of 26 per cent year-on-year (y-o-y) compared with the 50.1 per cent y-o-y growth seen in April.

“The performance of the retail and wholesale sectors also showed a similar trend, improving by 28.3 per cent y-o-y in May 2021, down from a 66.2 per cent growth in April 2021.

“Although both performances in May were still robust, these would soften in June due to the latest lockdown to curb rising Covid-19 cases,” it said in a note today.

The research house said the continued robust growth in both indicators were due to a low base during the first year of the pandemic and some flexibilities imposed during movement control order (MCO) 3.0 in May 2021.

“The low base is dissipating. We expected the Gross Domestic Product (growth) for 2021 to hover around 4.0 to 4.5 per cent,” it said in a note today.

Meanwhile, Kenanga Investment Bank Research has revised down Malaysia’s 2021 manufacturing production forecast to 5.5 per cent from 9.2 per cent (2020: -2.7 per cent) given the impact of extended lockdown measures and a worsening local Covid-19 condition.

It noted that the manufacturing index growth softened to 29.8 per cent in May from 68 per cent in the preceding month.

“Manufacturing output will likely continue to be moderately impacted by the extended MCO, which may be further exacerbated with several areas of Malaysia having been placed under a stricter enhanced MCO.

“However, manufacturing production is expected to recover over the second half of 2021, as MCO measures are eventually relaxed and as Covid-19 vaccinations progress, which would improve domestic demand,” it said.

Additionally, Kenanga Research said external demand would likely rebound as major trading partners continued to reopen and overcome concerns regarding the Delta variant.

“Against this backdrop, we have revised down our third quarter (Q3) 2021 GDP growth forecast to 6.4 per cent from 6.9 per cent, while our Q2 2021 and (full-year) 2021 GDP projections remain at 11.7 per cent and 5.0 to 6.0 per cent (2020: -5.6 per cent), respectively,” it said.

Meanwhile, Public Investment Bank Research remained sanguine on the outlook for Malaysia’s IPI as demand for industrial products may remain strong thanks to full economic openings in key economies such as the United States, eurozone and China.

The research unit said their vaccine-powered recovery given earlier accessibility was a path set to be emulated by Asean as well, consistent with the region that is currently doubling its effort to inoculate its population.

“The prospect of full economic openings in the fourth quarter (Q4) is encouraging. IPI output will also be shored up by massive global fiscal strategies and accommodative interest rate environment that will boost consumption and by extension, demand for manufacturing, agriculture and mining goods,” it said.

On another note, it said the Organisation of the Petroleum Exporting Countries and their allies’ (Opec+) supply adjustment that may spill into 2022 would bode well for the mining sector.

“Electricity component may also benefit from a revival in industrial activities which is set to reach its full potential in Q4.

“A combination of drivers may offset the temporary weakness caused by the first phase of the National Recovery Plan. We are sanguine on the outlook for IPI,” it added. — Bernama

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