KUALA LUMPUR: The country’s industrial production index (IPI) plunged 20.2% in January from a year earlier, as output from the manufacturing, electricity and mining sectors continued to be suppressed by the global demand slowdown.
According to the Statistics Department yesterday, the industrial production in the manufacturing sector fell 26.7%, followed by electricity and mining sectors that dropped 12.4% and 6.1%, respectively.
The IPI fell 15.9% year-on-year (y-o-y) in December 2008 mainly due to a contraction in manufacturing sector, especially in the electrical and electronics (E&E) industry.
RHB Research head Lim Chee Sing said given that the country was still dependent on external demand, there was no escape for its IPI to fall, as major economic indicators such as the US and Japan were still showing signs of deterioration.
“We must take into account the distortion of industrial production given that Chinese New Year was celebrated in January this year compared with February last year. But, having said that, the magnitude is still sharp and somewhat unprecedented.”
Manufacturing output’s decline accelerated given that output fell 18.4% in December 2008. The contraction in manufacturing output was due to decreases in all the seven manufacturing subsectors.
The electrical and electronic products subsector dropped 45.3% in January 2009. This was largely due to the 50.1% decline posted in the electrical machinery and apparatus. Month-on-month comparison showed this subsector shrank by 17.6%.
Lim said the plunge in the IPI was likely to continue for the next few months and could even accelerate, given that the global economic conditions had not stabilised.
“We expect the IPI contraction to exceed 40% in the next two to three months,” he said.
As such, he said the sharp IPI plunge could further indicate that the country’s economy would contract in 2009. “Our projection for the Malaysian economy is minus 1.5% this year,” he said.
Lim said even if China’s economy was the fastest to recover, it would not boost Malaysia’s industrial production and exports significantly, as more than 60% of the country’s exports to China were intermediary products to be marketed to other countries, particularly the US and Eurozone.
“As long as the US and European countries are not able to resolve the paralysis in their banking system that prevents banks from lending, the credit market will not stabilise, which in turn, impedes the recovery of demand,” he said.
OSK Research head Chris Eng noted that the weightage on the industrial production of the manufacturing sector was reduced, given that the Statistics Department had revised the base year to compute the IPI to 2005.
Nevertheless, he said the IPI figures were not as unexpected as initially thought as the consensus of the IPI shrinkage was about 19%.
“We expect some recovery seen in February and March although there will still be a y-o-y contraction, as December and January IPI usually post seasonally low numbers,” Eng said.
He said the country could better hold its exports, thanks to the demand for commodities such as crude palm oil and crude oil, unlike Hong Kong and Taiwan, whose economies were more services-oriented. This article appeared in The Edge Financial Daily, March 13, 2009.