Industrial production (IP) rose 3.9% y/y in June, slightly slower than May’s 4.0% y/y, and below market consensus of 4.1% y/y. Although mining output grew strongly by 4.6% y/y in June supported by stronger natural gas output that compensated for the poor crude oil output, the slower gains from manufacturing, up 3.8% y/y, and electricity, up 1.7% y/y resulted in the slower overall gain in IP.

Despite reporting slower IP growth in the month of June, the overall IP output in 2Q2019 was stronger by 3.9% y/y from +2.7%y/y in 1Q2019 supported by both manufacturing and mining output that climbed 4.1% y/y and 3.3% y/y respectively during the quarter from 4.0% y/y and -2.0% y/y respectively in 1Q2019. The manufacturing performance was in tandem with the manufacturing PMI survey result that showed production index falling for a second month in succession but the average for 2Q2019 of 48.7 was above that seen in 1Q2019 of 47.6. Likewise, both exports and imports in 2Q2019 on average grew by 0.2% and -1.2% compared with -0.7% and -2.5% in 1Q2019. Thus, underpinned by better 2Q2019 data reported by key economic indicators like IP, PMI, exports and imports, this shows that 2Q2019 GDP growth will be much stronger, estimated to be around 4.7–5.0% y/y from 1Q2019 GDP of 4.5%.

• Industrial production (IP) rose 3.9% y/y in June, slightly slower than May’s 4.0% y/y and below market consensus of 4.1% y/y. Although mining output grew strongly by 4.6% y/y in June (+3.0% y/y in May), the slower gains from manufacturing, up 3.8% y/y (+4.2% y/y in May) and electricity, up 1.7% y/y (+5.7% y/y in May) resulted in the slower increase.

• Stronger mining output came mainly from higher natural gas production which rose 13.0% y/y in June (+7.6% y/y in May). This compensated for the poor output in crude oil which dropped -3.7% y/y in June (-2.0% y/y in May). Natural gas output has been in the positive since March while mining crude oil production has been in the negative growth trajectory since January 2019.

• The slower manufacturing output was in tandem with PMI data. Our manufacturing Purchasing Managers’ Index (PMI) registered 47.8 in June, down from 48.8 in May. A reading below 50 suggests contraction while above 50 is an expansion. Looking at manufacturing output based on IP, domestic activities that reported slower growth in June are: (1) transport equipment which rose 5.6% y/y (+6.9% y/y in May); (2) petroleum, chemical, rubber & plastic up 3.0% y/y (+3.2% y/y in May); and (3) electrical & electronic products climbed 3.5% y/y (+3.7% y/y in May) in line with the global semiconductor net billings which fell 17.7% y/y in June from -14.6% y/y in May.

• Despite reporting slower IP growth in the month of June, the overall IP output in 2Q2019 was stronger by 3.9% y/y from +2.7% y/y in 1Q2019. Both manufacturing and mining output in 2Q2019 rose 4.1% y/y and 3.3% y/y respectively from 4.0% y/y and -2.0% y/y respectively in 1Q2019.

• The manufacturing reading supports the findings of manufacturing PMI where although the survey's production index fell for a second month in succession, the average for 2Q2019 of 48.7 was above that seen in the 1Q2019 of 47.6. At the same time, exports and imports in 2Q2019 on average grew by 0.2% and -1.2% compared with -0.7% and -2.5% in 1Q2019.

• Underpinned by better 2Q2019 data reported by key economic indicators like IP, PMI, exports and imports, this shows that 2Q2019 GDP growth will be much stronger, estimated to be around 4.7–5.0% y/y from 1Q2019 GDP of 4.5%.

Source: AmInvest Research - 13 Aug 2019