June’s industrial production (IP) slowed unexpectedly to 1.1% y/y, dragged by the sharp fall in mining output (- 9.4% y/y). But the weaker IP was contained with better output growth from manufacturing and electricity, up 4.5% y/y and 3.0% y/y respectively. We believe the economic outlook in 2Q2018 should stay healthy, likely to expand around 5.6%–5.8%. We believe the economy will grow around 5.5% for the full year of 2018 with the lower end of our base case GDP growth projection at 5.3%. Growth will continue to be supported by private expenditure and exports reflected with evidence of higher output and new export orders. In our view, the challenge to the economic growth will be in 2019. Ongoing global issues such as trade war, currency war, risk of emerging market debt crisis and global monetary tightening, added with domestic challenges could weigh on potential GDP outlook. Thus, we project 2019 GDP at 5.0%.

• June industrial production (IP) unexpectedly slowed by 1.1% y/y from 3.0% y/y in May, dragged by mining which fell 9.4% y/y from -0.5%y/y in May. However, the better output growth from manufacturing and electricity, up 4.5% y/y and 3.0% y/y respectively in June compared to 4.1% y/y and 2.6% y/y respectively in May, contained the downside on IP.

• Hence, we found the 2Q2018 growth from IP averaging 2.9% y/y was slower than the 3.9% y/y reported in 1Q2018. 2Q2018 average growth presented by manufacturing cooled to 4.7% y/y from 5.2% y/y in 1Q2018 although manufacturing sales grew faster in 2Q2018 by 7.2% y/y from 6.5% y/y in 1Q0218.

• Besides, the Purchasing Managers Index (PMI) improved to 49.5 in June although it is still below the 50 threshold level, reflecting a softer contraction in output and new orders from 47.6 in May with July’s reading at a five-month high of 49.7. Adding on, exports grew stronger in 2Q2018 by 8.3% y/y from 6.0% y/y in 1Q2018. Also, imports rose 8.1% y/y in 2Q2018 from -0.3%y/y in 1Q2018. Retail sales gained 9.8% y/y in 2Q2018 from 9.2% y/y in 1Q2018.

• Hence, we believe the economic outlook in 2Q2018 should stay healthy, likely to expand around 5.6%–5.8%. We believe the economy will grow around 5.5% for the full year of 2018 with the lower end of our base case GDP growth projection at 5.3%. Growth will continue to be supported by private expenditure and exports reflected with evidence of higher output and new export orders.

• In our view, the challenge to the economic growth will be in 2019. Ongoing global issues such as trade war, currency war, risk of emerging market debt crisis and global monetary tightening, added with domestic challenges could weigh on potential GDP outlook. Thus, we project 2019 GDP at 5.0%.

Source: AmInvest Research - 13 Aug 2018