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This article first appeared in The Edge Financial Daily on May 12, 2017

KUALA LUMPUR: Malaysia’s Industrial Production Index (IPI) increased 4.6% in March, compared with a 2.3% year-on-year growth in the same month last year.

The latest data released by the Department of Statistics shows that industrial production was largely driven by higher manufacturing and mining output in March.

The statistics revealed that manufacturing output climbed 5.9%, while mining output advanced by 2%.

Nomura Research commented that the latest statistics support its gross domestic product (GDP) growth forecast of 4.8%, which is at the top end of Bank Negara Malaysia’s 4.3% to 4.8% forecast and above consensus expectations of 4.4%.

MIDF Research chief economist Kamaruddin Mohd Nor concurred with the view. Kamaruddin said he projected stronger global demand, coupled with a modest recovery in commodities prices, providing a good platform for Malaysia’s GDP and IPI to expand at 4.9% and 5.3% respectively this year.

“Generally, we are more optimistic about the economic performance this year. All macroeconomic indicators to date are pointed towards better performance,” he said over the phone.

“Yes, we do not know what is going to happen going forward. But looking at the hard data, they are pointing towards a recovery [so] that is why we thought this year is going to be better than last year,” he said.

However, some economists are more cautious, pointing out that it may be too early to draw any conclusions now.

When contacted, AllianceDBS Research chief economist Manokaran Mottain told The Edge Financial Daily that the improvements were partially due to the lower base effect in 2016.

“Yes, it is attributable to [the] lower base effect and the recovery in oil prices. The recovery in the US and China economies also drives the numbers, but we are not sure whether this is going to be maintained or not,” he said.

“The figures are better off from six months ago, but we are still cautiously optimistic about [the] Malaysian economy moving forward, as there are still some uncertainties in the global market, like the sustainability of [the] economy in China and some geopolitical concerns,” he said.

Nonetheless, in his research note yesterday, Manokaran said that moving forward, the strong exports trend witnessed in the first quarter of 2017 (1Q17), especially in E&E (electrical and electronics) and shipment, will likely support manufacturing index growth and therefore a steady IPI growth is expected in the coming months.

“Given the strong performance of the manufacturing sector in 1Q17, we reckon that 1Q17 GDP could have strengthened to 4.7%,” he said.

According to the latest statistics, the major sub-sectors under manufacturing which recorded an expansion in March 2017 were E&E products (8.5%), petroleum, chemical, rubber and plastic products (3.6%), and wood products, furniture, paper products and printing (10.3%).

The growth in mining output during March this year was driven by a sustained increase of 7.9% in the Natural Gas Index. However, the Crude Oil Index contracted at a slower pace of 2.6%.

Growth throughout the first three months was averaged at 4.3%, higher than 2.8% recorded in the previous corresponding quarter.

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