Healthy resumption of production activity

KUALA LUMPUR: The upward trend in the Industrial Production Index (IPI) signals a healthy pickup in local production activity as more lockdown restrictions are lifted.

Malaysia’s October IPI rose 5.5% year-on-year, the fastest expansion in five months.

While the uptrend was generally in line with expectations given stronger export growth and a higher Manufacturing Purchasing Managers Index (PMI), MIDF Research noted that the pace of growth was faster than market forecasts.

Notably, growing demand has resulted in faster expansion of manufacturing sales.

“The value of manufacturing sales grew at a faster pace in October 2021 (+ 15.3% year-on-year) as the easing of restrictions, especially on the mobility of people, allowed demand and spending to pick up. .

“The increase in manufacturing sales was primarily supported by strong sales of refined petroleum products and electrical and electronic (E&E) products.

Notably, growing demand has resulted in faster expansion of manufacturing sales.

In addition, the recovery in consumer spending has also led to a rebound in sales of consumer electronics and motor vehicles, ”he said in a report.

The increase in industrial production in October is mainly due to stronger manufacturing production (+ 8% yoy) and higher electricity production (+ 4.1% yoy).

For the manufacturing sector, the increase in output was supported by the production of machinery, electrical engineering, food products, motor vehicles and base metals, among others.

The increase in electricity production was also in line with the improvement in demand thanks to the economic reopening.

In contrast, output in the mining sector continued to decline 3.5% yoy for the third consecutive month, mainly due to weak crude oil production and despite stronger growth in natural gas production.

On a monthly basis (month-on-month), manufacturing sales increased 4% month-on-month in October, increasing 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 over the coming months as the economic reopening allows consumers and businesses to increase spending,” MIDF said.

Demand for products was also driven by a stronger recovery in many other countries in October.

Despite persistent supply problems, industrial production in many countries strengthened during the month, in line with the higher global manufacturing PMI which recorded 54.3 points in October compared to 54.1 in September.

“Looking ahead, we expect global manufacturing activity to continue growing, given the sustained global PMI at 54.2 in November 2021, which reflects the continued expansion of manufacturing activity in the United States, in Europe and even in Asian countries, “he added.

With Malaysia’s manufacturing PMI remaining above 50 – at 52.3 in November 2021 – the MIDF believes the IPI will continue to grow. The research house has maintained its IPI growth at 9% this year.

“Local businesses have increased production activities in preparation for economic reopening and improving demand after the full foreclosure earlier this year.

“Sustained growth in foreign demand has also supported stronger manufacturing output, particularly for O&M and refined petroleum products.”

Nonetheless, he added that rising production costs, high raw material prices, a new variant of Covid and other supply constraints are risks that could affect production prospects.

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