- IPI improves in September. Malaysia’s industrial production index (IPI) advanced at a healthier pace of 5.1% YoY in September (August: +2.3%), owing to the improvement in all three sub-segments. Manufacturing /mining /electricity output registered growth rates of +5.6% /+4.4% / +2.6%, respectively. As for the mining segment, output reverted from contraction to growth, contributed by the increase in crude oil index (+11.8%). However, natural gas index had declined by 3.8%.

- Manufacturing output remains steady. The major sub-sectors of manufacturing which increased in September 2015 include E&E (+12.2%); Petroleum, Chemical, Rubber and Plastic Products (+3.5%) and Non-metallic Mineral Products, Basic Metal and Fabricated Metal Products (+4.7%). Also, manufacturing sales grew by 5.4% in September, driven by higher sales of E&E products including consumer electronics and computers (August: +0.8%).

- Manufacturing PMI contracts for seven straight months. Forward-looking indicators suggest that Malaysia’s manufacturing segment remained weak due to lacklustre operating conditions during the start of 4Q15. Purchasing Managers’ Index (PMI) contracted for the seventh straight month to register 48.1 points in October. Mainly, production declined at a solid rate, underpinned by a marked contraction in new orders. Subsequently, buying activity decreased during the month. On a positive note, employment and new export orders increased, with both registering growth for the second straight month.

- Global manufacturing activities gathered traction. Growth in the global manufacturing sector gathered traction in October. JP Morgan Global Manufacturing PMI stood at 51.4 points in October, up from 50.7 points in September. Global PMI indices for manufacturing output and new orders both signalled expansion. Signs of improvement were evident in Japan. Also, the Eurozone saw a modest acceleration, with expansions registered in almost all of the euro area nations. However, ongoing slump in emerging Asian markets continued to offset growth in many of the major developed industrial nations.

- Manufacturing output was supportive of IPI growth in 3Q15. Manufacturing output is also good proxy for quarterly GDP. On a quarterly basis, manufacturing output rose by 4.7% YoY in 3Q15 while IPI was broadly unchanged at +4.5% in 3Q15. Going forward, recent indicators suggest that the economy probably gained momentum into 4Q15. The manufacturing PMI for Malaysia showed slower contraction rate during the month of October. That said, the leading index had moderated slightly in August while the weaker-than-expected Ringgit currency will remain a drag on the economy in 4Q15.

Source: AmeSecurities Research - 11 Nov 2015