KUALA LUMPUR: Manufacturing sector is likely to be a key sector to buoy Malaysia's industrial production with a strong external demand cushioning the downturn, according to Moody's Analytics.
In an analysis report titled 'Malaysia Industrial Production', associate economist Sonia Zhu expect Malaysia's industrial production to pick up in the coming months from robust external demand and low base effect from the previous year.
Sustained growth in external demand will continue to bolster the production outlook for trade-oriented industries, given the strong demand for electrical and electronics, and rubber products and better economic prospects for major trading partners such as the US and China, said Moody's Analytics.
The financial intelligence company said Malaysia's industrial production grew 1.5 per cent year-on-year (YoY) in February, following a 1.2 per cent increase in the previous month.
The growth in February was primarily driven by the manufacturing sector as electrical and electronics exports surged on the back of higher global demand in the past months.
Moody's Analytics also further said the sustained growth in production activities was driven by a slower contraction in mining output and sustained output in the manufacturing sector.
However, manufacturing and electricity fell on monthly terms in February due to the Movement Control Order (MCO), which was only lifted in early March.
Manufacturing has been the bright spot in industrial output, with positive YoY growth since June 2020.
The global shortage of semiconductors in the automobile sector, together with other manufacturing powerhouses in the region buttressed the manufacturing output, the firm noted.
Transport equipment saw a surprising uptick as well, despite domestic and international travel restrictions.
Growth of consumer products such as food and beverages and tobacco, as well as textiles, remained sluggish as a result of shorter business operating hours and limited community mobility during the lockdown.
Production of rubber products boosted the manufacturing index as well, as global demand for medical rubber gloves continue to thrive amid the pandemic, increasing by 8.9 per cent YoY.
"We foresee the manufacturing sector to continue bolster the industrial production index, as indicated by 6.4 per cent YoY growth in manufacturing sales in February," the firm said.
The mining sector slipped back again after briefly eased on yearly decline in the previous month attributed to a decrease in crude oil and condensate index (-11.5 per cent) and natural gas index (-1.6 per cent).
Crude oil price volatility rose following another lockdowns in Europe and resurgence of infections in Asia, which added a level of uncertainty and pessimism to the eventual abatement of the coronavirus, Moody's Analytics said.
"With the success of worldwide vaccination drive, we foresee oil prices to trend upwards later this year on the back of global recovery," said Moody's Analytics.
The electricity sector continued to decline for the second consecutive month as a result of lower oil price.
In addition, Moody's Analytics said Malaysia's electricity production use coal, which was deemed as one of the most environmentally unfriendly input fuel.
"With a greater emphasis on clean and green energy, the electricity sector faces challenges to look for alternatives to meet the environmental target," it added.