KUALA LUMPUR, Feb 8 — MIDF Amanah Investment Bank Bhd has forecast the Industrial Production Index (IPI) to rebound by 6.3 per cent in 2021 compared with a contraction of 4.2 per cent in 2020 as production activity continues to recover from the pandemic-induced slowdown experienced last year.

For the early part of 2021, the investment bank expects the second Movement Control Order (MCO 2.0) to have some impact on production as clusters found in the workplace could hurt production activity for the affected companies.

“The domestic-oriented industrial output, in particular, would be hit by the weaker outlook for domestic consumption as a result of prolonged MCO 2.0 restrictions enforced in almost all states,” it said in a note today.

On the other hand, the production outlook for trade-oriented industries production will be positive, benefiting from growing external demand, said MIDF Amanah.

For the overall 2021, the IPI is projected to rebound this year supported by the recovering demand both from domestic and external markets.

“The rollout of COVID-19 vaccination programme locally and globally will help to improve confidence, and the stronger growth in major trading partners such as the US and China will support Malaysia’s exports and industrial production activity (is expected) to pick up this year,” it added.

The investment bank expects manufacturing sales could experience some drag in the early part of 2021 in view of MCO 2.0 imposed from mid-January 2021 as tighter restrictions to contain the surging COVID-19 cases would further hurt sentiment and spending plans.

However, MIDF Amanah foresees the negative impact from MCO 2.0 would be partly cushioned by growing business demand for intermediate goods as businesses are allowed to operate, while growing external demand will drive sales of parts and components especially for the electrical and electronics sector.

“Nevertheless, we expect sales to rebound this year from the low base in 2020. For the whole year 2020, manufacturing sales fell by 2.2 per cent (2019: +5.0 per cent) as demand weakened as a result of restrictions imposed to contain the COVID-19 outbreak,” it added.