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

KUALA LUMPUR: The better-than-expected Industrial Production Index (IPI), which increased 6.8% year-on-year (y-o-y) in August, is expected to add fuel to the country’s gross domestic product (GDP) growth for the remaining of the year.

The y-o-y 6.8% rise of the IPI is the fastest pace since March 2015 when it recorded 7.5%.

GDP growth for the first half of the year came in above expectations at 5.7%, the rather robust growth was earlier expected to lose some steam in the second half of the year. The latest IPI data has prompted some economists to raise their annual GDP growth targets.

“August’s IPI came in better than expectations, which signals that the third quarter of 2017 (3Q17) GDP growth will be on par or slightly higher than 2Q17’s GDP growth of 5.8%,” Affin Hwang Investment Bank Bhd chief economist Alan Tan told The Edge Financial Daily.

“In view of the better IPI performance and manufacturing production data, we are revising our full-year GDP growth target from 5.2% currently to 5.5%, for 2017,” Tan added.

He pointed out that the electrical and electronics (E&E) sector will drive industrial growth for the rest of the year.

“We believe that the economic growth moving forward will hinge particularly on the E&E sector, which grew at 8.6% in August,” Tan explained.

UOB economist Julia Goh concurred that GDP growth targets for the full year should be revised upwards from 5.2%, in view of the current industrial growth momentum as well as improved commodity prices.

“With the current momentum of growth, alongside other supportive factors, such as higher commodity prices to boost rural incomes, pipeline of infrastructure investments, and potential boost from new technologies and capacity expansions, we think there is upside bias to our current GDP forecast of 5.2% for this year,” Goh told The Edge Financial Daily via email.

“We think [the IPI performance] augurs well for 3Q17 GDP that is seen to expand by around 5.4% y-o-y following 5.7% in first half of this year. The expansion in industrial output has been driven by both export- and domestic-oriented sectors,” she added.

The Department of Statistics Malaysia (DoSM) said the manufacturing and mining sectors grew by 7.6% and 5.3% y-o-y, respectively, while electricity was by 3%.

The DoSM said the major manufacturing sub-sectors that recorded expansion in August 2017 were the petroleum, chemical, rubber and plastic products, coming in at 6.9%; E&E products, which grew 8.6%; and food, beverages and tobacco products, which were up by 9.4%.

Meanwhile, the mining sector’s output grew by 5.4% this month, compared with 0.2% in July, due mainly to a 14.6% increase in the index for natural gas, while the index for crude oil fell by 1.6%.