Better Malaysian exports looming as global economy starts opening up

The global Industrial Production Index (IPI) is expected to improve as economies start to open up, eventually contributing to better Malaysian export performance, said MIDF Research.

The firm said IPI performances across major and emerging economies were worse in April as most of the lockdowns globally took place in the month.

It said Malaysia’s IPI slumped by 32 per cent in April, the steepest fall on record and worse than market expectation as all sub-indexes recorded double digit drop.

“Among the sub-indexes, the manufacturing sector chalked the largest decline of 37.2 per cent year on year (yoy).

“Mining sector in particular contracted by 19.6 per cent yoy mainly due to lower oil prices following the oil price war besides the weak demand resulting from movement restrictions worldwide,” it said.

The firm said the Malaysian manufacturing sales plummeted by 33 per cent in April, also a record low.

All major products including electrical and electronic (E&E), refined petroleum and motor vehicles recorded double digit decline during the month.

Similarly, on a monthly basis, manufacturing sales shrank 31.2 per cent.

“Nevertheless, looking ahead, we view manufacturing sales to gradually improve in upcoming months amid relaxation of restrictions.

“Malaysia manufacturing purchasing manager’s index (PMI) surged to 45.6 in May 2020 from record low of 31.3 in the previous month,” it said.

MIDF Research downgraded Malaysia’s IPI growth forecast to 5.4 per cent. Year-to-date, IPI contraction averaged at 7.5 per cent yoy.

Due to a larger than expected fall in April 2020 and anticipation of slow recovery amid challenging domestic and external environment, the firm now expects the IPI to decline 5.4 per cent in 2020, a downward revision from 2.8 per cent initially estimated.

“Covid-19, slowdown in global demand and lower global oil prices affect Malaysia’s industrial output and exports. The re-escalation of US- China trade spat will also influence the production and trade flows.

“Nevertheless, lower overnight policy rate and government stimulus package which includes loan moratorium, additional financial aids to companies and wage subsidy would provide some support to the continuous production,” it added.