KUALA LUMPUR: The upward trend in the industrial production index (IPI) signals a healthy recovery in local production activity as more lockdown restrictions are lifted.
Malaysia’s October IPI had risen 5.5% year-on-year (y-o-y), the fastest expansion in five months.
While the uptrend was generally in line with expectations in view of stronger exports growth and higher manufacturing purchasing manager’s index (PMI), MIDF Research noted that the pace of growth was faster than the market’s forecast.
Notably, growing demand led to faster expansion in manufacturing sales.
“The value of manufacturing sales rose at a faster pace in October 2021 (+15.3% y-o-y) as the relaxation of restrictions, especially on people’s mobility, allowed demand and spending activities to recover.
“The increased manufacturing sales were mainly supported by robust sales of refined petroleum products and electrical and electronic (E&E) products.
Notably, growing demand led to faster expansion in manufacturing sales.
Furthermore, the recovery in consumer spending also resulted in a rebound in sales of consumer electronics and motor vehicles,” it said in a report.
The rising industrial output in October was mainly due to stronger manufacturing output (+8% y-o-y) and higher electricity generation (+4.1% y-o-y).
For the manufacturing sector, the increase in output was underpinned by the production of machinery, E&E, food products, motor vehicles, and basic metals, among others.
The increased electricity output was also in line with the improving demand on the back of economic reopening.
In contrast, output in the mining sector continued to fall by 3.5% y-o-y for the third consecutive month, mainly attributable to the weakness in crude petroleum production and despite the stronger growth in natural gas output.
On a month-on-month (m-o-m) basis, manufacturing sales increased by 4% m-o-m in October, expanding for the third month in a row and driven by higher sales of motor vehicles and consumer electronics.
“We expect this upward momentum in manufacturing sales to continue in the coming months as the economic reopening would allow both consumers and businesses to increase their spending activities,” MIDF said.
The demand for products was also led by a stronger recovery for many other countries in October.
Despite the ongoing supply challenges, industrial production in many countries strengthened during the month, in line with the higher global manufacturing PMI which registered 54.3 points in October compared to 54.1 in September.
“Going forward, we expect global manufacturing activity to continue growing, given the sustained global PMI at 54.2 in November 2021, which reflects the continued expansion in manufacturing activities in the US, Europe, and even in Asian countries,” it added.
With Malaysia’s manufacturing PMI remaining above 50 – at 52.3 in November 2021 – MIDF believes the IPI will continue to grow. The research house maintained its IPI growth at 9% this year.
“Local businesses have increased their production activities in view of the economic reopening and improving demand after the full lockdown earlier this year.
“The sustained growth in foreign demand also supported the stronger manufacturing output, particularly for E&E and refined petroleum products.”
Nonetheless, it added that rising production costs, high commodity prices, a new Covid variant and other supply constraints are risks that could affect production outlook.