Malaysia: Exports Lifted Manufacturing As 2020 Wound Down

Even so, the rapid spread of Covid-19 leads us to expect a steeper fall in Malaysia’s GDP in 4Q20, while 2021 is off to a weak start as well. We are more confident than ever that the central bank will cut rates by 25 basis points in March.

Above-expected December output

Malaysia’s December industrial production surprised on the upside. A 1.7% year-on-year rise in output was slightly better than our 1.5% growth forecast for the month but stood in stark contrast to the consensus of a -1.0% YoY fall. The rise followed a brief negative spell in the previous two months; -0.5% YoY in October and -2.2% in November.

IP continued to derive strength from exports, which rose 10.8% YoY in December following a 4.6% rise in November. Aligning with this, growth in the manufacturing component of IP more than doubled to 4.1% YoY from 2.0% over the same months. Yet the pick up was broad-based, and declines moderated in mining (to -5.4% YoY from -15.4%) and electricity output (to -0.2% from -2.5%).

Manufacturing sales growth also improved in December to 4.5% YoY from 2.1% in November. However, still-falling employment and wages in the sector in December, by -2.0% YoY and -0.8% YoY respectively, provided little hope of an imminent turnaround in domestic demand as a driver of Malaysia's GDP growth in the near-term, while an acceleration in the pandemic has now made things much worse.

Still, not a good end to 2020

The December figures bring the average 4Q20 industrial production growth to -0.3% YoY, a negative swing from +0.8% in 3Q. This will contribute to a steeper GDP contraction in the last quarter of 2020. The GDP report for 4Q20 report is due later this week on Thursday, 11 February. We are looking for a -5.2% YoY GDP contraction, down from -2.7% in 3Q.

Even as the export recovery gathered pace in the last quarter of 2020, the accelerating spread of Covid-19 and tighter movement restrictions continued to depress domestic demand. The number of Covid-19 infections jumped exponentially over the quarter, from about 11k at end-3Q to over 113k at end-4Q.

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