Malaysia’s production index expected to expand albeit slower

by NUR HANANI AZMAN / pic by MUHD AMIN NAHARUL

MALAYSIA’S Industrial Production Index (IPI) could rise to 3.2% in 2021 although it may be at a slower pace due to Covid-19 and Movement Control Order (MCO) impact.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said subsebquent restrictions on human mobility and strict adherence of standard operating procedures would cap the expansion in IPI this year.

“We believe the IPI would be propelled by the manufacturing sector especially the electrical and electronics (E&E) as the technology sector is expected to see good demand from smart devices, automotive industries and the new normal narratives which will require heavy usage of data and related devices.

“Healthcare-related products such as rubber gloves and transport equipment could also be the driver for IPI this year,” he told The Malaysian Reserve (TMR).

IPI grew 1.7% in December 2020 compared to December 2019, driven by a 4.1% growth reported by the manufacturing index.

For the full year, the nation’s 2020 IPI declined 4.2% from a year earlier.

This marks the first yearly decrease since the global financial crisis in 2009.

According to Moody’s Analytics, the fall in oil prices has since started to taper off, which bodes well for Malaysia’s mining sector.

“Optimism due to vaccine rollouts and supply cuts by OPEC has buoyed oil prices to near pre-pandemic levels.

“Nonetheless, renewed lockdown measures in Asia and Europe may weigh down on the demand for oil in the coming months,” it said in its analysis on Malaysia industrial production.

“However, much depends on external conditions, which are currently unstable. Lockdowns in Europe and Asia are still in place, even as countries race to roll out vaccines.

“Although Malaysia and other Asian countries have managed to quickly subdue the initial wave of the virus, it appears that widespread vaccine distribution is necessary for a sustained rebound in the region,” it added.

Meanwhile, Mohd Afzanizam believes the fourth quarter of 2020 (4Q20) GDP could come in at -3.1% year-on-year (YoY).

He said the Conditional MCO during the month of October and November was seen to be taking a toll on economic activities.

Separately, the services producer price index (SPPI) rose 0.5% to 110.1 in 4Q20 from 109.6 posted in 4Q19, demonstrating the resilience of Malaysian service sector.

Six subsectors posted a positive increase YoY compared to just two subsectors, said Putra Business School Assoc Prof Dr Ahmed Razman Abdul Latiff.

“Of course, some sectors are still experiencing negative growth such as arts, entertainment and recreation, which definitely will need a greater effort and focus by the government in terms of support and initiatives.

“For 1Q21, we most likely will see a slight decline especially if MCO 2.0 is not extended by the end of this month,” he told TMR.

The Department of Statistics Malaysia last Friday released the SPPI to measure the average changes in the prices of services charged by the local services industry in Malaysia.

Chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the main subsectors that contributed to the increase were accommodation, and food and beverage service activities (1.5%), real estate activities (1.5%), health (1.3 %), transportation (0.9%) and education (0.6%).

However, he said the index for arts, entertainment and recreation, and information and communication decreased by 2.2% and 0.1% respectively, while the index for professional remained unchanged.