In August, industrial production (IP) rose moderately by 2.2% y/y from 2.6% y/y in July. The manufacturing sector grew by 4.3% y/y from 5.2% y/y while the electricity output edged up 4.0% y/y in August versus 4.5% y/y in July. The mining sector, on the other hand, declined albeit at slower pace of 4.6% y/y from -5.9% y/y in July.

We believe the manufacturing sector will continue to support the economy on the back of healthy domestic demand and exports reflected this in the PMI number. However, the subdued mining conditions and weaker public spending are expected to cap the growth momentum. Hence, we project the economy to average at 5.0% for 2018.

However, looming fears on global monetary tightening, a “slowing China”, weaker demand outlook as reflected in the falling global PMI’s new export order, as well as domestic uncertainty suggest a challenging environment for the Malaysian economy in 2019. Hence, we expect the 2019 growth to be around 4.5%.

• In August, industrial production (IP) rose moderately by 2.2% y/y from 2.6% y/y in July supported by the manufacturing sector as well as electricity output. The manufacturing sector grew by 4.3% y/y from 5.2% y/y while the electricity output edged up 4.0% y/y in August versus 4.5% y/y in July. The mining sector, on the other hand, declined albeit at slower pace of 4.6% y/y from -5.9% y/y in July.

• Meanwhile, manufacturing sales rose 8.1% y/y in August compared with 9.6% y/y in July. Hiring pace and wages in the manufacturing sector remain favourable, up 1.9% y/y and 9.7% y/y in August compared with 2.0% y/y and 10.1% y/y, respectively in July. Lastly, productivity, measured by sales value per employee, grew 6.1% y/y in August from 7.5% y/y in July.

• The manufacturing PMI survey on the other hand has expanded firmly in the past two months. In September, the PMI penciled at 51.5 in September compared with 51.2 in August, marking a 10-month high. The firm expansion in the survey output was driven by the rise in employment, volume of new work, new export orders, and gain in output. The survey also pointed out a jump in input costs following the implementation of the SST which kicked off in September.

• We believe the manufacturing sector will continue to support the economy on the back of healthy domestic demand and exports reflected this in the PMI number. However, the subdued mining conditions and weaker public spending are expected to cap the growth momentum. Hence, we project the economy to average at 5.0% for 2018.
• However, looming fears on global monetary tightening, a “slowing China”, weaker demand outlook as reflected in the falling global PMI’s new export order, as well as domestic uncertainty suggest a challenging environment for the Malaysian economy in 2019. Hence, we expect the 2019 growth to be around 4.5%.

Source: AmInvest Research - 12 Oct 2018