December’s industrial production (IP) rose 3.4% y/y, supported by manufacturing primarily coming from the E&E segment and higher crude oil output in the mining segment. Both manufacturing and mining climbed 4.4% y/y and 1.0% y/y respectively while electricity output gained by 2.7%y/y in December. At the same time, manufacturing sales grew 7.5% y/y while wages jumped by 10.2% y/y in December with labour productivity edging slightly higher to 5.7% y/y. Besides, unemployment rate remained at 3.3% in December with an increase in labour force participation rate (LFPR) to 68.5% in December. The number of jobs added in December swelled to 44.7K, bringing the total number of jobs added to 345.9K jobs in 2018.

With both the IP production and exports having performed better in 4Q2018 with a growth of 3.4% y/y and 8.0% y/y respectively compared with 2.4% y/y and 5.3% y/y respectively in 3Q2018, it should provide some support to the 4Q GDP data. We are looking at a range of 4.4% to 4.6%, which should translate into a full-year growth of 4.6%–4.7% for 2018.

The bigger challenge will be in 2019. With the ongoing external headwinds added with domestic challenges, we are looking at a full-year GDP growth of around 4.5%, supported by domestic demand and complemented with exports. With an environment of slower global and domestic inflationary outlook for 2019, the global monetary policy outlook is expected to be less aggressive. Added with a stronger ringgit outlook for 2019, it opens the door for the domestic policy rate (OPR) to be reduced from the current 3.25%, a move to support growth and in an environment where there is limited room in the fiscal space.

• December’s industrial production (IP) rose 3.4% y/y from 2.6% y/y in November (cons: 2.8% y/y), supported by manufacturing and mining activities. Both manufacturing and mining climbed 4.4% y/y and 1.0% y/y respectively in December from 3.7% y/y and -0.7% y/y in November. Electricity output gained by 2.7% y/y in December from 3.2% y/y in November.

• Looking at manufacturing, the higher output came from the electrical & electronics segment which jumped by 7.2% y/y in December from 5.3% y/y in November, marking a four-month high. Its output was further supported by resource-based products like petroleum, chemical, rubber, & plastic as well as wood, furniture, paper products and printing.

• Meanwhile, manufacturing sales expanded by 7.5% y/y in December from 7.7% y/y in November, bringing 2018’s full-year average growth to 7.7% y/y from 13.7% y/y in 2017. Wages grew 10.2%y/y in December from 9.0% y/y in November while labour productivity edged slightly higher to 5.7% y/y from 5.6% y/y in November.

• Production of mining products was supported by higher crude oil output, up 2.5% y/y in December from 0.6% y/y in November with a slower contraction in natural gas, down -0.2% y/y in December from -1.8% y/y in November. Despite some recovery in the production capacity, the outlook in this sector remains cautious due to volatile crude oil prices.

• On a separate note, unemployment rate remained at 3.3% in December with an increase in labour force participation rate (LFPR) to 68.5% in December from 68.4% in November. In December, the economy added 44.7K jobs from 4.2K in November, bringing a total of 345.9K jobs created in 2018 compared with 273.3K in 2017.

• With both the IP production and exports having performed better in 4Q2018 with a growth of 3.4% y/y and 8.0% y/y respectively compared with 2.4% y/y and 5.3% y/y respectively in 3Q2018, it should provide some support to the 4Q GDP data. We are looking at a range of 4.4% to 4.6%, which should translate into a full-year growth of 4.6%–4.7% for 2018.

• The bigger challenge will be in 2019. With the ongoing external headwinds added with domestic challenges, we are looking at a full-year GDP growth of around 4.5% supported by domestic demand and complemented with exports. With an environment of slower global and domestic inflationary outlook for 2019, the global monetary policy outlook is expected to be less aggressive. Added with a stronger ringgit outlook for 2019, it opens the door for the domestic policy rate (OPR) to be reduced from the current 3.25%, a move to support growth and in an environment where there is limited room to in the fiscal space.

Source: AmInvest Research - 12 Feb 2019