PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 23 Jan 2020, 9:38 AM


Industrial Production Index (IPI) - A Disappointing Start to 4Q

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The IPI started its fourth quarter on a weaker note, with growth slipping to 0.3% in October against 1.7% in September. The slowdown was caused by decelerating momentum in all sectors, led by mining. Weak sentiment, moderating demand and a high base effect were primary causes. The mining sector, meanwhile, was affected by the surprise drop in natural gas output and sustained contraction in crude petroleum output. On a MoM and seasonally adjusted basis, IPI ticked 1.0% lower in October against -0.3% in September.

YTD IPI growth that has eased to 2.5% is still considered resilient given the challenging external conditions that have yet to show any signs of improvement. October’s IPI growth is slightly better than our ASEAN peers, far ahead of Thailand (October: -8.4%) and the Philippines (October: -4.4%) by a comfortable margin though we trail Singapore (October: +4.0%) for the first time this year. No comparison can be made with Indonesia as its data is not up-to date.

Sluggish manufacturing momentum was caused by further moderation in petroleum, chemical, rubber and plastics output (October: 1.0%; September: 2.1%) though offset by the surprise jump in E&E (October: 2.4%; September: 0.8%), significant components in the manufacturing sector (combined stake in IPI: ~39.0%). YTD manufacturing growth of 3.7% (YTD 2018: 4.9%) is fair given the challenging external conditions and may rebound once global trade returns to some form of normalcy.

Sluggish YTD E&E growth of 3.2% (YTD 2018: 5.9%) is however consistent with tepid global PMI manufacturing indices which have remained below the neutral level since May 2019. This is also reflected in our weakening export momentum which has suffered back-to-back monthly contractions (October: - 6.8%). The US and China’s signing of its “phase one” deal could lift sentiment, particularly for manufacturing and mining. Both sectors are expected to do well in 2020 driven also by a low base effect and recovery in demand. Competitive Ringgit will be an added push for headline IPI in 2020.

Mining sector delivered another disappointing performance (October: -5.8%; September: -1.6%) pulled down by sustained contraction in crude petroleum (October: -5.1%; September: -4.7%) that was further compounded by the surprise decline in natural gas output (October: -6.3%; September: 1.1%). Crude petroleum continued to be a drag on the sector following production constraints and PETRONAS’ voluntary supply adjustments that will continue until the 1Q20. Mining sector’s YTD average of -1.6% could turnaround in the near term amid sentiment that could recover driven by the breakthrough in US and China trade negotiations.

Headline IPI was further affected by the sharp decline in electricity output (October: 0.5%; September: 4.1%) post-extreme weather condition in September (haze). Growth was also affected by a high base factor following its strong jump last year.


Manufacturing. Growth moderated to 2.2% YoY in October (September: 2.5%), weighed among others by the slowdown in petroleum, chemical, rubber and plastics (October: 1.0%; September: 2.1%) output. Manufacturing’s YTD average of 3.7% is trailing the similar period in 2018 (4.9%). Note that only E&E and textile, wearing apparel, leather products and footwear delivered higher growth.

Source: PublicInvest Research - 13 Dec 2019

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