Malaysia

1Q2018 GDP expected to stay healthy

February’s Industrial Production (IP) rose 3.0% y/y following moderate growth from the manufacturing sector (+4.7% y/y) and electricity output (+2.8% y/y) with the mining sector output down -1.6% y/y. It was partly due to shorter working days added with the Chinese New Year celebration which also affected poor exports performance (-2.0% y/y) and manufacturing PMI (49.9).

We believe the IP growth in the coming month would be moderate on concerns of a rising trade war between the US and China and a stronger ringgit which will have some knock-on effects on exporters’ business sentiments. This is reflected by March manufacturing PMI which was at 49.5. Our preliminary estimates for 1Q2018 GDP is 5.8% y/y with our full-year outlook at 5.5% which is at the lower end of the official projection of 5.5% and 6.0%.

• In February, the Industrial Production (IP) grew 3.0% y/y from 5.4% y/y in January supported by the manufacturing sector as well as electricity output. The manufacturing sector rose 4.7% y/y in February from 6.9% y/y in January while electricity output gained +2.8% y/y in February from +4.3% y/y in January. The upside to the IP growth was curtailed with the -1.6% y/y fall in the mining sector from +1.5% y/y in January.

• The moderate growth in February was due to shorter working days added with the Chinese New Year celebration. The slower growth was further compounded by the poor exports performance which fell for the first time since Oct 2016 by 2.0% y/y. Besides, the manufacturing PMI was also in the contraction region, reading at 49.9. And finally, manufacturing sales rose slower by 4.9% y/y from 10.8% y/y in January.

• We believe the IP growth in the coming month would be moderate underpinned by concerns of a rising trade war between the US and China and a stronger ringgit, which will have some knock-on effects on the exporters’ business sentiments. It explains why firms continued to reduce their purchasing activity and pre-production inventories, and business confidence easing to the weakest in 2018 based on the March manufacturing PMI which was at 49.5. Our preliminary estimates for 1Q2018 GDP is 5.8% y/y compared to 5.9% y/y in 4Q2017 with our full-year outlook at 5.5% which is at the lower end of the official projection of 5.5% and 6.0%.

China

Expect weaker prices

The Producer Price Index (PPI) continued to cool in March, slowing to a 17-month low and backing our expectation of a broader slackening in economic growth in 2018 with a reading of 3.1% y/y. The Consumer Price Index (CPI) also eased in March as the effects of a booming demand spurred by the Lunar New Year holidays in February receded to 2.1% y/y in March.

Our concern remains on the trade war between the US and China. It has raised our focus on the Chinese inflation outlook, though we think the proposed tariffs on US soybeans and pork will have limited impact on consumer inflation. We think the broad price pressures will remain soft due to a slowdown in credit growth which is feeding through to an overall softening in the economic activity to around 6.4% in 2018.

• The Producer Price Index (PPI) continued to cool in March, slowing to a 17-month low and backing our expectation of a broader slackening in economic growth in 2018. The PPI has now softened for five months in a row, weighed down by the cooling property market and rising borrowing cost. The PPI in March rose 3.1% y/y from 3.7% in February.

• The Consumer Price Index (CPI) also eased in March as the effects of a booming demand spurred by the Lunar New Year holidays in February receded. The consumer inflation rose moderately by 2.1% y/y in March from 2.9% y/y in February while the core inflation cooled to 2.0% y/y from 2.5% y/y in February which was driven by a spike in tourism and transport costs during the Spring Festival.

• Our concern remains on the trade war between the US and China. It has raised our focus on the Chinese inflation outlook, though we think the proposed tariffs on US soybeans and pork will have limited impact on consumer inflation. We think the broad price pressures will remain soft due to a slowdown in credit growth which is feeding through to an overall softening in economic activity to around 6.4% in 2018.

Source: AmInvest Research - 12 Apr 2018