This article first appeared in The Edge Financial Daily on December 13, 2017

KUALA LUMPUR: Though Malaysia’s industrial production growth in October slowed and came in below expectations, analysts expect year-end sales and rising commodity prices to help sustain the pace of growth at a healthy level.

Yesterday, the Statistics Department reported that Malaysia’s October industrial production index (IPI) grew 3.4% year-on-year (y-o-y) — a 13-month low — driven by expansion in the country’s manufacturing, mining and electricity output.

Manufacturing output rose 4.2% and mining grew 0.8%, as electricity production climbed 4.6%.

However, October’s IPI growth missed market expectations of 4.1% y-o-y, said MIDF research in a note yesterday. During the same month last year, the y-o-y IPI growth came in at 4.2%.

The research house said the manufacturing segment’s output growth of 4.2% was also the lowest so far in 2017, citing weaker demand from top trade destinations, namely China and European Union, as a major factor for the slowdown in Malaysia’s industrial production.

“Malaysia’s exports to China grew at an 11-month low in October. The export growth was in line with [a] slowdown in China’s IPI and retail sales performances during the month. Hence, manufacturing production, such as electrical and engineering, petroleum-related products, and transport machinery and other manufactures recorded lower growth as compared with September’s,” said MIDF. IPI growth in September 2017 remained unchanged at 4.7% y-o-y.

Nonetheless, MIDF noted that manufacturing production, together with the overall IPI performance, are expected to return to a solid pace in November given the double-digit growth in China’s external trade, as exports climbed 12.3% y-o-y and imports gained 17.7% y-o-y.

It added that the continuous uptrend in both wages and employment in the manufacturing sector also provides a bright outlook for the country’s economic activities in the last quarter of the year.

“[The] encouraging trend of IPI growth is expected to continue for the rest of 4Q [of] 2017, given that robust external trade performance continues and modest increase[s] in commodity price[s] will boost industrial activity in Malaysia. Due to strong export performances for the past 10 months of 2017 and optimistic business confidence, we believe the upbeat momentum will remain and thus cause positive spillover effects on Malaysia’s industrial production this year.

“Based on [the] solid uptrend in trade activities and steady domestic consumption, we expect industrial production growth to hit 4.8% in 2017,” said MIDF Research. 2016’s average IPI growth was at 3.8%.