PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 15 Oct 2019, 9:05 AM


Industrial Production Index (IPI) - Full Year IPI at 3.1%

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Malaysia clocked-in a higher industrial production (IP) growth in December (December: 3.4%; November 2018: 2.6%) lifted by a convincing rebound in manufacturing activity amid the turnaround in mining output that offset the slowdown in electricity sales. Manufacturing churned a faster growth of 4.4% in December against 3.7% in November, consistent with the strong rebound in E&E exports (December 2018: +14.2%). It has been in volatile form since October and could still be so until and unless there is a solution to the current US-China trade impasse.

The month’s IPI performance was also shored up by the turnaround in mining (December: 1.0%; November: -0.7%), thanks to higher growth by crude petroleum on the back of smaller contraction in natural gas output. Electricity’s growth slowed to 2.7% from 3.2% in November and has been volatile throughout the year. The official seasonally-adjusted (SA) data shows IP contraction of 1.6% on a MoM basis, a deterioration against +0.2% in November. Full year IPI is at 3.1%, a notable deceleration against 4.3% in 2017, lifted by the rebound in electricity (2018: 3.7%; 2017: 2.6%) amid the pullback in manufacturing (2018: 4.8%; 2017: 6.1%) and mining (2018: -1.9%; 2017: -0.1%). This will be manufacturing’s lowest growth since 2016 (4.3%) on the back of the worst performance for mining in almost a decade. Electricity sector, in the meantime, has rebounded from its lowest ebb in 2017 (2.6%).

On specifics, manufacturing IP growth rebounded to 4.4% in December (November: 3.7%), pulled up by stronger performance in E&E (December: 7.2%; November: 5.3%), petroleum, chemical, rubber and plastic (December: 3.6%; November: 3.4%) and wood products, furniture, paper products, printing (December: 5.0%; November: 2.8%).

The perk-up in E&E performance was actually a decoupling from the global PMI performance (December: 51.4; November: 51.5; October: 52.0), suggesting that manufacturers have been busy with re-stocking activities in anticipation of the sharp jump in global demand should trade negotiations turn out well by the end of February. Headline IPI also mustered slower electricity output (December: 2.7%; November: 3.2%) on the back of disappointing full year average of 3.7% which is below the long-term average of 5.3% (2012-2017).

Mining performance remained a source of disappointment following its volatile showing although its performance has improved for the month. Mining rebounded in December to +1.0% (November: -0.7%) thanks to smaller contraction in natural gas output (December: -0.2%; November: -1.8%) and stronger growth in crude petroleum (December: 2.5%; November: 0.6%;).

There has yet to be any new developments on China-US trade negotiations with less than a month towards the 2nd March deadline for the US to slap higher tariffs on USD200bn of China’s goods. In fact, President Trump has declined a proposal to meet China’s President, Xi Jinping prior to the deadline, sparking concern that US is not bending at all towards a more balanced outcome. Nonetheless, we continue to expect an eventual outcome positive to global growth, even though possibly marginal, come end-February.


Manufacturing. Growth reaccelerated to 4.4% YoY in December from 3.7% in November, pushing the full year average to 4.8%, though trailing the same period last year (2017: 6.1%). Output was boosted by the rebound in E&E that appeared to be unscathed by the brewing trade issues. Other sub-sector that showed inspiring form include petroleum, chemical, rubber and plastics products and wood products, furniture, paper products, printing. The rest of sub-sectors showed a deceleration, with F&B and tobacco remaining the only ones in contractionary mode.

Below are the details for the month:

  • F&B and tobacco (December: -1.1%; November: -1.7%)
  • textile, wearing apparel, leather products and footwear (December: 4.2%; November: 4.8%)
  • wood products, furniture, paper products, printing (December: 5.0%; November: 2.8%)
  • petroleum, chemical, rubber and plastics products (December: 3.6%; November: 3.4%)
  • non-metallic mineral products, basic metal, fabricated metal products (December: 4.1%; November: 4.1%)
  • E&E (December: 7.2%; November: 5.3%) and
  • transport equipment and other manufactures (December: 7.0%; November: 8.3%)

Growth ticked 2.6% lower on a MoM and SA adjusted basis, a deterioration against the month before (November: +1.3%).

E&E performance rebounded convincingly, seemingly unhurt by the uncertainties over the trade war. Growth for the month reaccelerated to 7.2% from 5.3% in November, consistent with the strong form showed by E&E export (+14.2%). Full year average is at 6.0%, lower than the 2017’s average of 7.3% which is fair given the trade disputes.

Mining: Mining sector performance improved for the month, pulled up by the smaller contraction in natural gas amid higher growth by crude petroleum. It rebounded to 1.0% YoY in December against -0.7% the month before on the back of uninspiring full year growth of -1.9% (2017: 0.1%). December’s output details are as follows:

  • natural gas (December: -0.2%; November: -1.8%)
  • crude petroleum oils & condensates crude oil production (December: 2.5%; November: 0.6%)

On a MoM and SA basis, the mining index improved following a jump of 1.6% vs. a contraction of 2.5% in November.

Electricity: December’s growth slowed to 2.7% YoY (November: 3.2%), no thanks to slower industrial activity, consistent with the drop in MIER’s 4Q business survey (4Q: 95.3; 3Q: 108.8). Full year average is now tracking 3.7%, a marked turnaround against the same period last year (2017: 2.6%) but still below the long-term average of 5.3% (2012-2017). On a MoM basis, the index ticked 0.9% slower, a slow down against +1.3% for November.


We remain optimistic of a positive outcome to trade negotiations. We believe both parties would reach a middle ground solution as a lot is at stake especially when respective growth prospects could be at risk if this situation prolonged. President Trump is especially vulnerable as he is due for a primary election in March as China is reportedly able to withstand some shocks should trade negotiations turn sour.

With slightly more than two weeks before time runs out and seemingly no visible progress made, the US is no stranger to u-turn decisions, meaning that the negotiation deadline could still be extended beyond what has been agreed. Therefore, a piecemeal solution could be on the plate which is good enough to spark a rally not only in global trade but also in asset and commodity prices.

Source: PublicInvest Research - 12 Feb 2019

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