KUALA LUMPUR (Dec 14): Analysts maintained their gross domestic product (GDP) growth forecast even after the Industrial Production Index (IPI) fell more than expected.

Hong Leong Investment Bank Research analysts Felicia Ling and Goh Khing Mae said in a note today that the IPI reversed into a contraction of 0.5% year-on-year (y-o-y) in October, from the 1% y-o-y growth in September, faring worse than the consensus estimate of 0.2% growth y-o-y.

According to them, growth weakened on the back of steeper decline in mining production and slower manufacturing production, which offset the rebound in electricity production.

“While Malaysia has re-introduced conditional movement control order (CMCO) 2.0, we anticipate manufacturing production to continue expanding, albeit at a slower pace. We maintain our expectation for GDP to contract by 5.5% in 2020 and revised downwards 2021 GDP [growth] to 6.0% (previous: 6.5%),” they said.

Meanwhile, Kenanga Research said the reinstatement of anti-Covid-19 measures around the world due to the ongoing resurgence of infections could hinder production activities and reduced external demand.

Nevertheless, rapid improvement in the global energy demand, spurred by the coronavirus vaccine optimism, may provide some support to the industrial sector, it said.

“Against this backdrop, we retain our manufacturing IPI projection of 2.9% [contraction] in 2020 (2019: 3.6%), in line with this year's projected 5.1% decline in GDP growth (2019: 4.3%),” it added.

Meanwhile, Public Investment Bank Research’s analyst Dr Rosnani Rasul opined that industrial activity should improve gradually in 2021 thanks to the recent breakthrough in Covid-19 vaccine development.

“Removal of the largest drag to growth may trigger a turnaround in major industrial activities led by manufacturing amid a sustained global digital transformation and demand for 5G-related products.

“Electricity components may also rebound consistent with a turnaround in major economic sectors like agriculture, services, manufacturing and construction. Mining sector could recover but at a slower pace no thanks to persistent supply and demand imbalances that may take time to correct. Improving prospects will underpin IPI jumping by 4.9% y-o-y in 2021,” she said.

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