The global Industrial Output Index (IPI) is expected to increase as economies continue to open up, ultimately leading to better performance of Malaysian exports, MIDF Research said.
The firm said that IPI output across big and developing economies was weaker in April as most of the lockdowns happened in the month globally. It said Malaysia’s IPI fell by 32 per cent in April, the steepest record-breaking decline and worse than market expectations as all sub-indexes recorded double digit decline.
Mining sector in particular contracted by 19.6 per cent yoy primarily due to lower oil prices during the oil price war in addition to the poor market arising from worldwide movement restrictions.
The company said the sales of Malaysian manufacturing plummeted 33 per cent in April, also a record low. During the month, all major products including electric and electronic (E&E), refined petroleum and motor vehicles reported a double-digit decline. Similarly, the production sales shrank 31.2 per cent on a monthly basis.
However, we look forward to seeing manufacturing revenues slowly rising in the coming months in the midst of constraint relaxation. Malaysia ‘s Purchasing Manager Manufacturing Index (PMI) grew to 45.6 in May 2020 from the previous month’s record low of 31.3.
MIDF Research has downgraded the IPI development outlook for Malaysia to 5.4 per cent. IPI contraction year-to-date averaged 7.5 per cent yoy. Because of a higher than anticipated fall in April 2020 and expectation of sluggish recovery in the midst of tough domestic and external climate, the management now expects the IPI to decrease by 5.4 percent in 2020, an originally forecast downward revision of 2.8 percent.
Covid-19, decline in foreign demand and lower global oil prices impact manufacturing production and exports in Malaysia. The re-escalation of US-China trade dispute would also impact the movements of supply and exports.
Nevertheless, a lower overnight policy rate and a government stimulus package that includes a moratorium on loans, additional financial aid to companies and wage subsidies would provide some support for continued production.