The manufacturing sector would be the biggest driver for the recovery, riding on the strong global demand for electrical and electronic (E&E) products.

The pace of recovery, however, may be throttled down if the country continues to see an elevated number of Covid-19 cases and unexpected delays in the vaccination programme nationwide.

The second round of the movement control order (MCO 2.0) that began on Jan 13 could also slow the performance of industrial production, according to MIDF Research economist Mazlina Abdul Rahman. (pic below)

“Strong 2021 growth forecasts that our key trading partners such as China and the US are projecting will increase demand for our products.” – Mazlina Abdul Rahman

However, she told StarBiz that the impact of MCO 2.0 could be less than last year’s MCO, considering that most business sectors are currently allowed to operate.

“The manufacturing sector, which holds the highest weightage of the Industrial Production Index (IPI) at 68.25%, will continue to excel mainly buoyed by increasing demand for E&E products.

“Likewise, rubber products (gloves) will remain a key contributor this year as demand is likely to stay elevated with rising Covid-19 cases worldwide and even to administer vaccines.

“Strong 2021 growth forecasts for our key trading partners such as China and the US are projecting will increase demand for our products, hence production, ” said Mazlina.

As for the country’s mining sector, Mazlina said production is expected to gradually improve this year, with crude oil prices likely to be higher in 2021.

“Nevertheless, travel restrictions in many countries which are unlikely to be lifted in the near period will limit the recovery, ” she added.

In a statement yesterday, the Statistics Department said that the IPI returned to positive growth in Dec 2020 and grew by 1.7% year-on-year (y-o-y), which was the strongest growth since Feb last year.

The industrial production growth in the month also surpassed a Bloomberg survey of a 0.2% decline, after a 2.2% fall in the previous month.

“The growth of IPI in Dec 2020 was driven by the manufacturing index with 4.1%. Meanwhile, the mining and electricity indices dropped 5.4% and 0.2% respectively, ” said the Statistics Department.

In the fourth quarter of 2020, the IPI fell by 0.3% y-o-y. Meanwhile, the IPI for overall 2020 recorded a decline of 4.2% as compared to the previous year.

The drop was influenced by all indices namely mining (-9.7%), electricity (-3.7%) and manufacturing (-2.7%).

Alliance Bank chief economist Manokaran Mottain projects the IPI to average higher in 2021, on the back of expected recovery in demand as well as the low base seen in 2020.

However, he remains cautious on the near-term sustainability of the performance of industrial output.

This is because of the lingering uncertainties revolving around the pandemic and the effectiveness of the vaccination programme in Malaysia.

Manokaran said the rebound in December’s IPI data could be partly attributed to seasonal factors, given that the month of December often sees the highest production each year.

“Also, eased movement restrictions that allowed the gradual resumption of factory production during the month is another reason for the rebound. On a month-on-month basis, the IPI in Dec 2020 rebounded by 4.7%, ” he said.

Commenting on the strong growth seen in the manufacturing index of IPI, Manokaran said this was in line with the five-month high manufacturing Purchasing Managers’ Index (PMI) performance of 49.1 registered during Dec 2020.

“New orders and export demand were higher in December compared to other months – leading to a stronger growth in manufacturing.

“Nevertheless, January’s PMI has slightly dropped due to the moderation seen in new orders. This will likely drag the manufacturing production in the near term, ” he said.

Going forward, he added that E&E products, transport equipment and metal products will continue to boost the manufacturing performance

As for the mining sector, which has been on a negative trajectory throughout 2020, Manokaran believes any recovery within the sector largely depends on the recovery in global oil demand.

Meanwhile, the electricity sector will likely remain on a contractionary trend at least until March 2021, he said.

“The electricity index of IPI contracted in Dec 2020 due to the provision of electricity bill discounts by the government, ” according to Manokaran.

Source: https://www.thestar.com.my/business/business-news/2021/02/09/strong-rebound