Logic Invest Research Blog

Author: loginvest   |   Latest post: Tue, 10 Sep 2019, 10:14 AM


Economic Focus - 2018 IPI Moderated, 4Q GDP Likely to Grow at 4.2%

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  • IPI growth accelerated to 3.4% in December, from 2.6% in November
  • E&E segment remains key driver of manufacturing sector growth
  • We expect 4Q18 GDP at 4.2%, 2018 growth maintained at 4.6%


Malaysia’s Industrial Production Index (IPI) expanded by 3.4% y-o-y in December, compared to 2.6% y-o-y growth in November.

This was mainly driven by expansion in Manufacturing (+4.4% y-o-y), Electricity (+2.7% y-oy) and Mining (+1.0% y-o-y).

Within the Manufacturing sector (68.25% index weightage), growth was seen in most subsectors. E&E Products grew 7.2% y-o-y, Transport Equipment and Other Manufactured Products rose by 7.0% y-o-y and Petroleum, Chemical, Rubber and Plastic Products expanded 3.6% y-o-y.

The Mining sector posted positive y-o-y growth in December, rebounding from November’s contraction of 0.7% – mainly due to the expansion in Extraction of Crude Oil & Condensates (2.5% y-o-y), and a milder contraction in Production of Natural Gas of 0.2% y-o-y.

For the full-year 2018, IPI growth moderated to 3.1% y-o-y vs 4.3% y-o-y in the corresponding period of 2017.

Our comments

Overall, December IPI growth came in above Bloomberg consensus estimate of 2.7%.

On a seasonally adjusted (SA) m-o-m basis, IPI growth contracted 1.6% (Nov: +0.2% m-om), mainly due to the decline in Manufacturing (-2.6% m-o-m) and Electricity (-0.9% m-om). However, the Mining sector expanded by 1.6% m-o-m during the same month.

In 2018, the Manufacturing sector grew at a slower pace of 4.8% y-o-y (2017: +6.1%), mainly due to the slowdown in the production of E&E Products (2018: +6.0% y-o-y vs 2017: +7.3% y-o-y) and production of Food, Beverages and Tobacco products (2018: +3.2% y-o-y vs 2017: +10.8% y-o-y).

Moreover, total manufacturing sales grew at a slower pace of 7.7% y-o-y in 2018 (2017: +13.7%) from RM765.8m in 2017 to RM824.8m in 2018. Nevertheless, sales were mainly contributed by sales of manufactured refined petroleum products (RM129.28m – 15.7% of total manufacturing sales) and manufactured electronic components and semiconductor products (RM174.31m – 21.1% of total manufacturing sales).

Meanwhile, the Nikkei Malaysia Manufacturing PMI increased to 47.9 in January 2019 from 46.8 in December 2018, albeit still in bearish territory – thus marking the fourth consecutive month of contraction in manufacturing activity as output and new orders contracted on the back of softer demand from China, Japan and South Korea.

Meanwhile, downside risks are to likely persist in the face of various headwinds such as the ongoing trade tensions between the US and China, volatile crude oil prices and global growth moderation, which may indirectly affect new order volumes and the profitability of Malaysia’s industrial production.

Nevertheless, we expect 4Q18 GDP growth to come in at 4.2% y-o-y, while maintaining our full-year forecast of 4.6% in 2018, and 4.5% in 2019.

Source: Alliance Research - 11 Feb 2019

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