Malaysia’s April Manufacturing Plunges 32%

By Prakash Sakpal of ING Economics

Economic and Financial Analysis • Jun 11, 2020 at 5:45 AM EDT

As Malaysia’s industrial production tumbles by 32% in April, the case for more rate cuts seems to be getting stronger and stronger.

As Malaysia’s industrial production tumbles by 32% in April, the case for more rate cuts seems to be getting stronger and stronger. We expect another 100bp rate cut by the end of 3Q.

Exports dent manufacturing

Malaysia’s industrial production tumbled 32% in April from a year ago, surpassing consensus centered around a -15.4% year on year and our estimate of -25%.

A sharp plunge in exports, by 24% in April, explains the weakness. These are the worse readings for exports and manufacturing since the 2009 global financial crisis.

But its wasn’t just exports weakness that dragged manufacturing down. The Covid-19 movement restrictions also depressed domestic demand. Manufacturing sales - a proxy for retail sales, also posted a 33% YoY fall in April as employment and wages fell.

Today's data is a harbinger for poor GDP data

Industrial production growth closely tracks manufacturing GDP growth, which in turn drives total GDP growth. Undoubtedly, today's data is a harbinger for a sharp GDP fall in the current quarter, thanks to the Covid-19 movement control measures that spanned almost the entire quarter. We recently cut our 2Q20 GDP growth forecast to -8.3% YoY from -6.6%, and the full-year 2020 forecast to -3.9% from -2.9%.

The case for further monetary policy easing by the central bank in this cycle is just getting stronger. The central bank has cut its policy rate by a total of 100 basis points so far this year and we anticipate an additional 100bp cut by end-3Q20, taking it to an all-time low of 1%.

The next scheduled meeting is on 7 July.

Manufacturing and GDP growth (% year-on-year)

Source: CEIC, ING
Quarterly data.

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