PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 24 Apr 2019, 9:46 AM


Industrial Production Index (IPI) - Decent Start For The Year

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Malaysia’s IPI started the year on steady form despite the challenging external conditions as YoY growth in January (3.2%) came off only slightly vis-à-vis December (3.4%). The month’s IPI was lifted by manufacturing (4.2%) and electricity (7.8%) but weighed by the deterioration in mining (-0.9%). Manufacturing sector performance remained resilient despite stresses of the trade war whilst electricity was boosted by the unusually warm weather in January. Mining sector remained a source of disappointment following its erratic performance amid the surprise drop in the production of crude petroleum (- 2.2%). It remains to be seen if natural gas output can sustain its positive momentum (January: 0.3%) given inconsistencies in the last few months.

The official seasonally-adjusted (SA) data shows IP growth of 1.2% on a MoM basis, an improvement against 0.2% in December. The month’s IPI is markedly lower than a year ago of 5.1% while manufacturing growth of 4.2% is the slowest since May 2018 (4.1%) though we view this as a temporary blip in view of the current stress over China-US trade collision. Manufacturing sector output may normalize post-trade war especially when manufacturing YoY sales growth of 7.7% in 2018 is markedly lower than the 13.3% in 2017, suggesting that manufacturing output may rebound strongly in 2019 (post-trade war). This can lift the IPI higher given the large manufacturing share in the IPI index (68.2%).

On specifics, manufacturing IP growth retreated to 4.2% in January (December: 4.4%) pulled down by weaker E&E performance (January: 3.9%; December: 7.2%) and transport equipment and other manufacturers (January: 6.3%; December: 7.0%) though offset by others especially by wood products, furniture, paper products, printing (January: 5.7%; December: 5.0%). The weaker E&E performance could be temporary and we expect it to rebound once the trade issues have been resolved.

The weaker E&E performance was consistent with global PMI performance that remains on sliding mode (February: 50.6; January: 50.8; December: 51.4; November: 51.5), suggesting that manufacturers have remained cautious ahead of the outcome of US-China trade negotiation. Headline IPI was shored-up by higher electricity output (January: 7.8%; December: 2.7%) boosted by higher electricity consumption on the back of a warm month in January. The rebound and contribution to headline IPI was not material due to its small share to headline numbers (6.6%).

There has yet to be any development on US-China trade negotiations but the good news is that the US has put on hold the new higher tariff on China goods. With no new deadline given, jittery conditions will continue until there is closure on this.


Manufacturing. Growth decelerated to 4.2% YoY for the month (December: 4.4%), as momentum was weighed by the slowdown in E&E which suffered a pullback in January. Other sub-sectors that showed less-than-inspiring form include transport equipment and other manufacturers amid a higher YoY growth by others.

Below are the details for the month:

  • F&B and tobacco (January: 2.6%; December: -1.1%)
  • textile, wearing apparel, leather products and footwear (January: 5.4%; December: 4.2%)
  • wood products, furniture, paper products, printing (January: 5.7%; December: 5.0%)
  • petroleum, chemical, rubber and plastics products (January: 4.0%; December: 3.6%)
  • non-metallic mineral products, basic metal, fabricated metal products (January: 4.3%; December: 4.1%)
  • E&E (January: 3.9%; December: 7.2%) and
  • transport equipment and other manufactures (January: 6.3%; December: 7.0%)

Growth ticked 1.3% higher on a MoM and SA adjusted basis, a rebound against the month before (December: 0.3%).

E&E performance slowed for the month but may rebound once the trade war is over. Growth decelerated markedly to 3.9% in January from 7.2% in December, consistent with the weak form showed by E&E exports (+8.2%).

Mining: Mining sector performance dropped for the month, pulled down by the contraction in crude petroleum output. It skidded to -0.9% YoY in January against 1.0% the month before on the back of uninspiring full year growth of - 1.9% in 2018 (2017: 0.1%). Note that mining sector remained troubled by supply issues since 2Q18 and its performance has been less-than-inspiring since then. January’s output details are as follows:

  • natural gas (January: 0.3%; December: -0.2%)
  • crude petroleum oils & condensates crude oil production (January: -2.2%; December: 2.5%)

On a MoM and SA basis, the mining index jumped by 0.3%, a turnaround against -0.5% in December.

Electricity: January’s output advanced convincingly for the month (January: 7.8%; December: 2.7% YoY), lifted by higher consumption amid a warm month. On a MoM basis, the index grew at a faster rate of 4.0%, a rebound against - 0.1% in December.


A piece-meal solution to the current US-China trade impasse will be more than enough to spark to a rebound in trade, capital markets and other asset prices that could be harbinger of faster global growth. We view the US president’s decision to extend the recent deadline as good news, suggesting that he can and will bend to attain what’s necessary for common good and not hold on stubbornly to a winner-take-all position.

Source: PublicInvest Research - 15 Mar 2019

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