5% growth in industrial output above consensus

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KUALA LUMPUR: Malaysia’s industrial production index (IPI) rose 5% in October from a year earlier on growth in all three segments — manufacturing, mining and electricity — of the output gauge.

According to data released by the Statistics Department yesterday, manufacturing output grew 3% while mining and electricity production rose 11.5% and 3.4% respectively.

The figures came in better than expected.

For the January-October period, the IPI expanded 4.9% compared with the corresponding period last year.

Meanwhile, the Statistics Department said in a separate statement Malaysian manufacturing sales rose 2.4% to RM55 billion in October from RM53.8 billion a year earlier.

Cumulative 10-month sales climbed 6.5% to RM545.8 billion from RM512.5 billion.

“The recent data releases point towards a subdued outlook in both domestic and external conditions. However, October IPI growth slowdown was not as sharp as expected. In fact, October IPI growth came above the Bloomberg consensus estimate of +4.2%,” commented Alliance Research economist Manokaran Mottain in a research note yesterday.

“Nevertheless, we still think that IPI growth would taper in the coming months in tandem with the expected broad slowdown in economic activities. The economy faces headwinds from expected moderation in domestic demand and also a weaker external outlook,” Manokaran added.

He expects the mining component to soften in months to come given the “sustained fall in crude oil prices since June”. In recent months, export of petroleum-related goods have already shown signs of moderation.

The export of refined petroleum products have contracted for two consecutive months in September (-15.1%) and October (-19.1%), according to Alliance Research.

Besides, Manokaran noted that the sharp increase in growth in the mining subsector during the month could be attributed to the low base from the previous year.

“It is important to note that exports had fallen 3.1% in October (September: +2.0%) due to the weak demand for electrical and electronic goods (-4.5%) and refined petroleum products (-19.1%). Therefore, we expect weak exports in light of the subdued external conditions to pose further downside risk to industrial production in the months ahead.

“However, we see the dampening sentiments and recent weak data releases as a moderation of the pace of growth in the economy rather than an outright contraction.”

Meanwhile, Citi Research said in a note yesterday that growth in October suggested a fourth-quarter gross domestic product “pickup” to around 5.6% year-on-year and 7.8% quarter-on-quarter compared with the third-quarter levels.

“Looking ahead, desynchronised global outlook is likely to see a sharper differentiation among export industries — manufacturing is likely to do better given stronger dependence on US final demand, while commodity exports could be muted, given softer price outlook and greater dependence on Japan,” commented Citi Research.

It pointed out that the pickup in October consumption and capital goods imports suggests resilient domestic demand for now. Unless the growth outlook — especially for consumption — improves sufficiently to fuel demand pull pressures, Citi Research expects Bank Negara Malaysia to continue to maintain its “accommodative” policy stance.

“We see the earliest window for the next hike in September 2015 when there is sufficient data to assess the growth/inflation impacts of GST [goods and services tax], and when the Fed [US Federal Reserve] starts hiking, though risks are likely tilted towards further delays,” Citi Research wrote in the research note.


This article first appeared in The Edge Financial Daily, on December 12, 2014.