Malaysia’s industrial production index (IPI) moderated to 3.0% yoy in February, compared to an upwardly revised 5.4% yoy in the preceding month. In January, annual growth was recorded as 3.0% but it has since been revised higher, after the base year used to calculate the index was changed from 2010 to 2015. The increase in February was supported by manufacturing and electricity sectors but nevertheless, output increased at a softer pace for both manufacturing (Feb: 4.7%; Jan: 6.9%) and electricity (Feb: 2.8%; Jan: 4.3%). In addition, production fell for mining (Feb: -1.6%; Jan: +1.5%).
On monthly basis, the IPI plunged 10.3% in February from 1.5% increase in January. The decrease was dragged by all major sectors; manufacturing (Feb: -9.8%; Jan: 1.8%), mining (Feb: -12.5%; Jan: 1.7%) and electricity (Feb: -8.1%; Jan: -1.6%).
The industrial production recorded a modest growth in February as the manufacturing sector grew at the slower pace. As it stands, manufacturing activities which hold the largest weight in the IPI eased to 4.7% yoy in February, from the revised 6.9% yoy in the preceding month. The growth in manufacturing output in February was led by petroleum, chemicals, rubber and plastics products (7.0%), electrical and electronic (5.4%) and non-metallic mineral products, basic metal and fabricated metal products (5.0%).
Electricity output eased to 2.8% yoy in February 2018 after posting a 4.3% yoy rise in the preceding month. On the contrary, the mining sector output fell by -1.6% yoy in February from an increase of 1.5% in January. The decrease was due to the decline in natural gas index (Feb: -3.5%; Jan: 1.5%). However, the crude oil index grew by 0.5% in February (Jan: 1.8%).
Manufacturing sales in February eased to 4.9% yoy from a 10.8% yoy increase in the previous month. It was the slowest growth since October 2016 (1.9%). The manufacturing sector recorded a sales value of RM62.3bn in February 2018, with an increase of RM2.9bn as compared to RM59.4bn reported a year ago. The modest growth was reflected by the slower production of E&E products (Feb’18: 5.7%; Jan’18: 14.3%; Dec’17: 9.3%), petroleum, chemical, rubber & plastic products (Feb’18: 6.6%; Jan’18: 10.9%; Dec’17: 12.5%) and nonmetallic mineral products, basic metal & fabricated metal products (Feb’18: 5.1%; Jan’18: 8.1%; Dec’17: 6.8%). These three sub-sectors accounted 80.4% to the total sales value of the manufacturing sector.
On monthly basis, the sales value stumbled by -8.0% (RM5.4bn) as compared with the previous month. On a seasonally adjusted mom, the sales value in February 2018 edged down to 0.4% (Jan: 1.3%).
Manufacturers added more workers during the month as reflected in the hiring of workers where total employees engaged in the manufacturing sector in February 2018 was 1,065,849 persons, an increase of 2.2% or 22,900 persons as compared to 1,042,949 persons in February 2017. However, on monthly basis, the number of employees declined 0.4% as compared to 1,070,549 persons in the preceding month.
Salaries & wages paid in February 2018 surged 16.7% yoy (RM537.6m). When compared to the previous month, the total amount paid in February 2018 increased by 0.5% (RM18.9m) to register RM3.8bn. The average salaries & wages paid per employee registered RM3,527 in February 2018, a rise of 14.2% yoy and an increase of 0.9% mom.
Productivity or average sales value per employee in February 2018 grew by 2.6% yoy and plunged by -7.6% mom to register RM58,494.
According to data from the Semiconductor Industry Association (SIA), global sales of semiconductor products for the month of February 2018 rose by 21.0% yoy to USD36.8bn. This represents the 19th consecutive month of year-over-year sales improvement since August 2016. Higher sales were recorded across all major regional markets and all semiconductor product categories. On a monthly basis, the global semiconductor sales have decreased by -2.2% mom which represent the second consecutive month of decline. This is in-line with the typical seasonal market trends. For February, sales from the Americas region grew at the highest pace at 37.7% yoy. The other regional also recorded commendable growth in sales of between 15.5% and 21.7%. However, on monthly basis, only Europe recorded an increase in sales growth of 0.9% while all the other regional markets posted lower sales of between -0.9% to -4.3%.
Industrial production in the US picked up to 4.3% yoy in February from 2.9% yoy in the preceding month. On the other hand, Japan’s industrial production grew at a moderate pace of 1.4% yoy after increased by 2.5% yoy in January.
Regional industrial production data were mixed. Singapore’s industrial production grew 8.9% yoy in February 2018, moderating from the revised 16.9% growth in January. Industrial Production in Philippines surged 23.6% yoy in February, after a downwardly revised 17.2% rise in January. It was the steepest growth in industrial output since April 2010. Thailand’s IPI growth stabled at 4.7% yoy for two consecutive months.
Industrial output moderated to 3.0% yoy in February, following upwardly revised 5.4% yoy in the preceding month. Meanwhile, exports growth contracted sharply in February by 2.0% yoy (Jan: +17.9%), the lowest growth recorded in 16 months. Cumulatively, exports still registered a growth of 7.8% yoy in the first two months of 2018. The contraction in exports was exacerbated by the shorter working month while the appreciation of the ringgit against a broad range of currencies possibly eroded Malaysia’s trade competitive edge and hampered the performance of local exports. Exports of manufactured goods increased by 1.5% yoy (Jan: 20.4%), underpinned by a decline of exports in electrical and electronic (E&E) products (Feb: -0.1%; Jan: 27.1%) and chemical products (Feb: -23.4%; Jan: 23.4%).
Trade war fears. The trade tensions between US and China was the focus last week. In the face of US’s proposed USD50bn tariffs on Chinese import, China introduced USD50bn worth of tariffs on US imports as well. Even as China responded to US Trade Representatives’ (USTR) latest announcement with another reciprocal tariff, both US and China signalled their willingness to negotiate on the escalating trade frictions. Just as markets were feeling optimistic that US and China were willing to come to the negotiating table and de-escalate the rising trade tensions, US President Trump, instructed USTR office to consider USD100bn in additional tariffs against China “in light of China’s unfair retaliation” against earlier US tariffs.
Encouraging signs in the US-China trade conflict. In a highly-anticipated keynote speech at the Boao Forum for Asia (BFA) Annual Conference this week, China President Xi Jinping laid out plans to lower import tariffs on autos and other products and also pledged to protect legal intellectual property of foreign firms. He promised to take measures to sharply widen market access for foreign investors. China will take the initiative to expand imports this year and made clear its desire to increase imports and achieve greater balance of international payments under the current account. Xi also implored developed economies to stop imposing restrictions on normal and reasonable trade of high-tech products and relax export controls on such trade with China. In his speech, Xi emphasized that countries should “stay committed to openness, connectivity and mutual benefits”. President Xi’s demonstration of his willingness to negotiate suggests that China is not considering further retaliatory actions on trade and/or currency. The question is on how much of what President Xi said will be implemented and how fast it will happen but the softer tone in his approach should help to ease the trade tensions with US for now. We will likely still see ebbs and flows in the trade dispute but we see the recent developments as a positive sign that both countries want to find a solution and strike a deal rather than go into a trade war.
Overall, the decline in Malaysia exports will likely be temporary and exports are poised to resume a growth trajectory whilst Industrial production is expected to be healthy in the 1Q18 as global demand continues to exhibit a healthy trend. We are maintaining our forecast for gross exports and gross imports growth of 6.3% and 6.0% respectively and IPI growth of 4.2% in 2018. Nonetheless, the latest decision by the Trump administration to impose tariff on imports from China and retaliation by China means that we are entering the most crucial phase of the trade conflict, where it is uncertain what happens next. The worst case would be a global trade war which could undermine the external demand especially for export-oriented economy such as Malaysia. We have yet to see any meaningful policy response by other countries but this could serve as a reminder that the downside risk is very much visible. Nevertheless, headwinds from global trade tension could pose possible threat to our trade and IPI estimates.
Source: BIMB Securities Research - 12 Apr 2018
Created by kltrader | Aug 19, 2024
Created by kltrader | Aug 12, 2024
Created by kltrader | Aug 12, 2024