PETALING JAYA: The latest industrial production index (IPI) reading suggests that Malaysia’s economy is likely to have bottomed out in July.

       Given the gradual relaxation of the lockdown measures, the IPI will likely show a rebound in August, indicating that the country’s economic recovery has started since last month.

       According to RHB Investment Bank Research, this recovery is expected to continue through the second half of this year and into next year.

       “In our view, the August IPI will surprise on the upside, with the improvement in broad economic activity happening during the month. Our high frequency data indicate a sharp improvement upwards in the month as the lockdown restrictions were eased,” RHB group’s senior economist Nazmi Idrus said.

       “In our view, the August IPI will surprise on the upside, with the improvement in broad economic activity happening during the month. Our high frequency data indicate a sharp improvement upwards in the month as the lockdown restrictions were eased,” RHB group’s senior economist Nazmi Idrus said.

       He wrote in a recent report: “RHB Bank’s proprietary machine-learning-derived IPI suggests that the economy had commenced a rebound in August. This will continue in the second half of 2021 and into 2022.”

       Last Friday, the Statistics Department announced the IPI fell 5.2% year-on-year (y-o-y) in July 2021, weighed down by weakness in the manufacturing sector.

       The decline in the July IPI was sharper than the median 1.9% y-o-y fall projected by 12 economists surveyed in a Reuters poll.

       In June, Malaysia’s IPI was up 1.4% y-o-y.

       Commenting on the report, chief statistician Datuk Seri Mohd Uzir Mahidin said the IPI decline in July was due to the decrease in the manufacturing index (-6.5%) and electricity index (-6.6%). The mining index, on the other hand, recorded an increase of 0.6%.

       “The weakness in the July IPI data was expected as the imposition of the enhanced movement control order in parts of Selangor and Kuala Lumpur between July 3 and 16 caused closures and disruption to the domestic production chain. However, these were offset by the gradual reopening in other states,” Nazmi said.

       Meanwhile, MIDF Research said despite the weak July IPI numbers, it maintained its projection for IPI to increase 9% y-o-y in 2021.

       “Our projection already imputed the weakness in the middle of the year following the imposition of a full nationwide lockdown. We expect business and production activities to pick up following the gradual relaxation of restrictions from the middle of July 21 and even in the latter part of the third quarter of 2021,” the brokerage said in its report.

       “In particular, the government recently decided to allow Selangor, Putrajaya and Kuala Lumpur to move to phase two of the National Recovery Plan effective Sept 10. The recovery in domestic spending and increased mobility will support domestic-oriented production activities, while the sustained growth in the external demand will support exports and export-oriented output in the coming months,” it added.

       MIDF Research said as more workers get vaccinated, the reopening of the economy would allow companies to increase their production with higher capacity utilisation.

       However, it cautioned that a resurgence of Covid-19 infections and tighter restrictions in other parts of the world could affect Malaysia’s trade outlook.

       Nevertheless, it still expects Malaysia to benefit from increased global demand for electrical and electronics (E&E) and commodity products.

       “We expect the strong demand for tech products and E&E components will continue to support global production, but a worsening Covid-19 situation may affect the economic reopening and even lead to rising concerns about near-term economic prospects in certain countries,” MIDF Research said.