KUALA LUMPUR: Malaysia’s industrial production index (IPI) grew at 5.3% year-on-year (y-o-y) in June from 2.8% y-o-y in May — well above consensus estimate of 2.5%, leading economists to revise their prediction for second quarter (2Q) gross domestic product (GDP) growth.

Bank Negara Malaysia (BNM) will be releasing the 2Q16 GDP figure today.

United Overseas Bank (Malaysia) Bhd economist Julia Goh said based on the 3.7% growth in industrial output and 5.6% growth in the services index for 2Q16, real GDP growth may come in higher than market estimates at 4.2% in 2Q16, same as the growth posted in 1Q16.

The general marker consensus is for the 2Q16 GDP to grow at 4% y-o-y.

“Originally we expected a slight downtick in 2Q16 owing to slower manufacturing output (a growth of 3.9% compared with a growth of 4.3% in 1Q16) and declines in crude palm oil output (down 10.2% compared with a decline of 20.3%),” she said in a note yesterday.

“Based on the latest services index, it appears that the resilience in the services sector (5.6% compared to 4.7%, 54% share of GDP) is helping to shore up slowdown in other areas,” Goh added.

She said contrary to the general view that consumer spending and sentiment are weak, the latest Malaysian Institute of Economic Research business, consumer, retail and employment sentiment indices suggest improved confidence in 2Q16.

Supporting factors include employees provident fund contribution cuts, extra tax relief, minimum wage hikes, civil servant salary increase, and higher 1Malaysia People’s Aid handouts, she said.

Yesterday, data from the department of statistics showed that Malaysia’s IPI expanded at 5.3% y-o-y in June, driven by growth in all sectors.

Manufacturing output rose 4.7% y-o-y from 3.7% y-o-y in May, while mining production rebounded and grew 6.3% from a 1.1% contraction in May and electricity output growth slowed to 8.7% from 9.6% in May.

The growth in the manufacturing sector was supported by three major subsectors namely electrical and electronics (E&E) products (9.1%); petroleum, chemical, rubber and plastic products (5%) and wood products, furniture, paper products, printing (10.1%).

Nomura Global Markets Research said June IPI growth suggested that 2Q16 GDP growth is tracking 4.3% y-o-y, which is above the research firm’s current forecast of 4% and a slight improvement from 4.2% in 1Q16.

“This, in addition to the Brexit vote appearing to have a more limited impact on financial markets and confidence than we expected, increases the upside risks to our full-year GDP growth forecast of 3.9%,” the research firm said in a note yesterday.

“Consequently, while we expect BNM to cut its policy rate again this year by 25 basis points, this faces a risk of some delay,” it added.

JF Apex Securities said it expects the IPI to continue rising by 4.2% y-o-y in July 2016 on the better-than-expected July data, as well as improved performance in export and import of main products recorded in June.

“Moreover, the low base in the corresponding period last year also will lift up our IPI growth in July 2016,” it said.

“In addition, higher growth in E&E products coupled with recovery in mining performance, will continue to support IPI expansion.