Logic Invest Research Blog

Author: loginvest   |   Latest post: Wed, 19 Feb 2020, 9:17 AM


Economic Focus - Steady IPI Growth in January, Ahead of Consensus

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  • IPI grows by 3.2% in January, a tad lower than +3.4% in December
  • Led by manufacturing output, offsetting the decline in mining output
  • We maintain our 2019 GDP growth forecast at 4.5%


Malaysia’s Industrial Production Index (IPI) expanded by 3.2% y-o-y in January 2019, compared to 3.4% y-o-y growth in December 2018.

This was mainly driven by expansion in Electricity (+7.8% y-o-y) and Manufacturing (+4.2% y-o-y) which more than offset the contraction in the Mining sector (-0.9% y-o-y).

Within the Manufacturing sector (68.25% index weightage), growth was seen in most subsectors. Transport Equipment and Other Manufactured Products grew 6.3% y-o-y; NonMetallic Mineral Products, Basic Metal & Fabricated Metal Products rose by 4.3% y-o-y; Petroleum, Chemical, Rubber and Plastic Products expanded 4.0% y-o-y and E&E Products grew 3.9% y-o-y.

The Mining sector contracted by 0.9% y-o-y in January, mainly due to the decline in the extraction of Crude Oil & Condensates (-2.2% y-o-y), although the production of Natural Gas inched up by 0.3% y-o-y.

Our comments

Overall, January IPI growth came in above Bloomberg consensus estimate of 2.3%.

On a seasonally adjusted (SA) m-o-m basis, IPI growth expanded by 1.2% (December 2018: +0.2% m-o-m), mainly due to an increase across all segments: Manufacturing (+1.3%), Mining (+0.3%) and Electricity (+4.0%). This signalled that Malaysia’s industrial output growth remains resilient despite the slowdown of output growth in key economies such as the US and China.

In fact, the Manufacturing sector’s output continued to be supported by E&E production, which grew 3.9% in January (December 2018: +7.2%) as Malaysian E&E manufactured goods remained attractive for the export markets. This was reflective of the strong trend observed in E&E exports performance (January 2019: +8.2% vs December 2018: +14.2%).

Meanwhile, total manufacturing sales grew at 7.0% y-o-y in January (December 2018: +7.5%) to RM72.48m from RM67.76m during the same month in the preceding year. Nevertheless, January sales were mainly contributed by sales of manufactured refined petroleum products (RM12.43m – 17.2% of total manufacturing sales) and manufactured electronic components and semiconductor products (RM15.15m – 20.9% of total manufacturing sales).

However, the Nikkei Malaysia Manufacturing PMI declined marginally to 47.6 in February from 47.9 in January, marking the fifth consecutive month of contraction in manufacturing sector with continued declines seen in both output and new orders. This is in line with the decreasing trend of manufacturing PMIs globally in recent months.

Furthermore, downside risks are likely to persist in the face of various headwinds such as the ongoing trade tensions between the US and China, volatile commodity prices and global growth moderation, which may weigh down on new order volumes and the profitability of Malaysia’s industrial production. Nevertheless, we expect our 1Q19 GDP growth to come in at 4.5% y-o-y, while maintaining our full-year forecast of 4.5% in 2019.

Source: Alliance Research - 14 Mar 2019

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