Industrial production (IP) in October rose at a slower pace by 3.4% y/y partly due to slower gains from manufacturing (+4.2% y/y) and mining (+0.8% y/y) despite stronger electricity production (+4.7% y/y). Although manufacturing production grew at a weaker pace, manufacturing sales continued to expand at double digits by 11% y/y in October, reporting its 11th consecutive month of double-digit growth, benefitting from the cheap ringgit against the USD. While the manufacturing output rose at a moderate pace, exports expanded strongly by 18.9% y/y in October, recording its 11th consecutive month of double-digit expansion. Besides, imports surged 20.9% y/y in October with positive momentum from imports of intermediate and capital goods, which were up 14.8% y/y and 5.1% y/y respectively.

Hence, our preliminary estimates using the October data suggest that the GDP has most likely peaked in 3Q2017 with a 6.2% growth. Our preliminary estimates indicate a 6.0% GDP growth in 4Q2017 GDP, bringing the full-year average GDP to 5.9%. We expect the quarterly GDP growth to continue expanding but at a moderate pace in 2018 partly due to the high base. With our 2018 GDP outlook at 5.5%, we believe the quarterly GDP growth should bottom around 1Q2019 before it starts picking up as the base effect fizzles out while the overall economic activity continued to be supported by domestic demand and exports.

• Industrial production (IP) in October rose 3.4% y/y from 4.7% y/y in September partly due to slower gains from manufacturing which rose by 4.2% y/y in October from 7.1% y/y in September as well as mining, which ticked up 0.8% y/y in October from 2.1% y/y in September. Despite slower IP gains, the output from electricity production rose 4.7% y/y from 2.2% y/y in September.

• While the manufacturing production grew at a weaker pace, manufacturing sales continued to expand at double digits. In October, sales rose 11% y/y from 10.7% y/y in September, reporting its 11th consecutive month of double-digit growth. Sales is poised to continue benefitting from the cheap ringgit against the USD.

• Although manufacturing output expanded at a moderate pace, exports grew strongly by 18.9% y/y in October, higher than September’s 14.8% y/y, also posting the 11th consecutive month of double-digit expansion. Besides, imports’ growth surged 20.9% y/y in October from 15.2% y/y in September. We found positive momentum from imports of intermediate and capital goods, which were up 14.8% y/y and 5.1% y/y respectively and expect imports to improve in November given that the manufacturing PMI figure came in at 52 points, a 43-month high.

• Hence, our preliminary estimates using the October data suggest that the GDP has most likely peaked in 3Q2017 with a 6.2% growth. Our preliminary estimates indicate a 6.0% GDP growth in 4Q2017 GDP, bringing the full-year average GDP to 5.9%. We expect the quarterly GDP growth to continue expanding but at a moderate pace in 2018 partly due to the high base. With our 2018 GDP outlook at 5.5%, we believe the quarterly GDP growth should bottom around 1Q2019 before it starts picking up as the base effect fizzles out while the overall economic activity continued to be supported by domestic demand and exports

Source: AmInvest Research - 13 Dec 2017