KUALA LUMPUR (March 12): Malaysia's Industrial Production Index (IPI) grew 1.2% in January from a year ago, driven by higher activities in the manufacturing segment while the country’s mining and electricity output dropped.

In a statement today, the Statistics Department said the IPI’s manufacturing segment grew 3.5% year-on-year (y-o-y) compared with 4.1% in December 2020. The mining and electricity sectors, however, dropped 4.5% and 4.6% y-o-y respectively.

“The major sub-sectors contributing to the growth in the manufacturing sector in January 2021 were electrical & electronics products (7.9%), petroleum, chemical, rubber & plastic products (4.5%) and wood products, furniture, paper products & printing (2.4%).

"The export-oriented industries drove the growth of the manufacturing sector by 4.6% while domestic-oriented industries increased by 1.5%,” said the statement.

"The drop in the output of the mining sector was due to the decrease in crude oil & condensate index (-9.4%) and natural gas index (-0.5%),” the department said.

RHB Investment Bank senior economist Nazmi Idrus said in a note today, the expected softening in first half headline IPI numbers are likely to be exacerbated by the slowdown in global supply chain following acute shortage of semiconductors, especially in light vehicle manufacturing.

“However, we suspect the issue to be temporary as semiconductor companies ramp up production,” he said.

On the domestic front, he said, the easing of MCO 2.0 restrictions recently is expected to lead to some partial recovery in production.

“Despite that, we still expect the segment to remain weak considering the major impediment still remains in place,” he added.

MIDF Research, however, said in a note today, the January IPI growth was stronger than its expectation as it projected IPI growth to moderate to 0.6% y-o-y.

“The sustained growth in production activities was driven by a slower contraction in mining output and sustained output in the manufacturing sector,” it said.

MIDF Research projected that the recovery in production activity this year will support for the IPI to rebound by +6.3% this year (2020: -4.2%).

“The latest data suggests that the impact from MCO 2.0 in the latter half of the month was minimal, but we foresee the sequential slowdown in industrial production to continue in February 2021, as indicated by the further decline in Malaysia's manufacturing PMI,” it said.

MIDF Research also pointed out that sustained growth in external demand will continue to support the production outlook for trade-oriented industries, given the strong demand for electrical and electronics, and rubber products and better economic prospects for major trading partners such as the US and China.

“Going forward, we expect production to continue recovering as sentiment improved following the rollout of the Covid-19 vaccination programmes in Malaysia and in other countries,” it said.