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Manufacturing focus on industrial output growth

Manufacturing focus on industrial output growth

16 Mar 2021

Industrial output in Malaysia is expected to see stronger growth in the second half of the year, supported by the manufacturing sector on resumption of economic activities, economists say.

They attribute the optimistic outlook to the gradual easing of the movement control order (MCO), Covid-19 vaccination programme and improving external demands.

According to AmBank Research, the outlook for manufacturing is poised to remain favourable.

“The gradual easing of the MCO, mass vaccination, positive exports outlook and a pick-up in domestic activities will provide the necessary boost to the sector, ” the financial institution said in its report yesterday.

“This should see the full year gross domestic product growing around 5.2% to 6.0% in 2021, ” it projected.

TA Research projected the manufacturing activity would pick up from the second quarter onwards, driven by the recovery in global demand, continued support from policy measures and the positive impact from the vaccine rollouts.

In addition, the brokerage said the role of foreign direct investments (FDI) would be significant in driving Malaysia’s economy, particularly in the manufacturing sector.

TA Research maintained its overall industrial production index (IPI) growth of 6.2% year-on-year (y-o-y) in 2021, noting production activity would continue to recover from the pandemic-induced slowdown experienced in 2020.

Malaysia’s IPI expanded 1.2% y-o-y in January 2021 on increase in manufacturing activities.

The Statistics Department revealed that the manufacturing sector’s output rose 3.5% y-o-y during the month in review.

The mining and electricity indices, however, declined 4.5% and 4.6%, respectively.

According to Public Investment Bank, the IPI was expected to remain volatile in the the first half of 2021 before advancing steadily in the second half of hte year amid Malaysia reaching herd-immunity only by year-end.

“The possibility of a resurgence in Covid-19 infections before reaching herd immunity could push for a reversion to partial economic closures though the impact will be less severe given a better handling of Covid-19 containment measures this time around, ” Public Investment Bank said.

“In any case, IPI in the near term is expected to be supported by the manufacturing component thanks to strong global demand for electrical and electronics goods which sees no slowing down after its rebound last year.

“The global pandemic condition and rapid global migration towards 5G network will also underpin its performance in the near term. This will be more than enough to offset the downside risks from mining and electricity components thanks to the sector’s lion’s share in the IPI, ” it explained.

Similarly, BIMB Research said it expected industrial production to grow higher in the second half of 2021.

“The outlook remains strong for the months ahead. Overall, we anticipate the vaccination in the major economies toy boost the business outlook and external demand as the daily Covid-19 cases have started to fall, ” BIMB Research said.

“Businesses continue to remain positive about the inflow in their order books and for production in the months ahead in general. While input problems like chip shortages and higher container prices may dampen output a bit, we do not expect this to throw the production expansion off course significantly, ” it argued.

The brokerage, therefore, expected industrial production to continue to provide an important counterweight to the services sector, which was still suffering from restrictive measures to curb the spread of Covid-19.

“While we do expect GDP to contract in the first quarter of 2021, manufacturing strength will likely soften the blow. We are maintaining our projection for the IPI to grow by 5.8% supported by the recovering demand both from domestic and external markets, ” it said.

Source: The Star