HLBank Research Highlights
Economics - Performance of IPI (May 2015)
News
- IPI growth bounced back to 4.5% yoy in May after hitting 9-month low of 4.0% in April, beating consensus estimate of a 3.1% gain. The higher reading in May was driven mainly by a strong rebound in mining output, which more than offset the slowdown in manufacturing and electricity sectors MoM basis, IPI turned around to grow by 3.8% after contracting by 5.1% in April, with all sub-segments inking positive expansion.
- In Jan-May 2015, IPI rose 5.6%, almost meeting the pace of 5.7% in the same period a year ago.
Comments
- The better-than-expected IPI growth in May was credited to (i) higher crude oil production from new fields; (ii) recovery in natural gas output; and (iii ) resilient demand for E&E products benefiting from weak MYR. Mining output rebounded to a high single-digit growth of 9.0% in May after dropping to an 8-month low of 3.9% yoy in April. This was driven by robust crude oil output (+18.8%; Apr: +15.0%) amid a smaller decline in natural gas production (-1.9%; Apr: -8.1%).
- Manufacturing production growth weakened in May (+3.2% yoy; Apr: +4.2% yoy), the slowest expansion since Nov 2014. This was dragged down by domestic-oriented industries (+1.9%; Apr: +3.6%), namely food products (-3.3%; Apr: +6.3%) and building materials (+2.8%; Apr: +3.4%), which were cushioned somewhat by sturdy growth in transport equipment (+23.0%; Apr: -4.6%). Exportoriented industries also grew more moderately by 3.8% (Apr: +4.3%), with support primarily coming from E&E (+4.0%; Apr: +4.0%); refined petroleum products (+1.9%; Apr: +0.5%) and chemical products (+11.9%; Apr: +11.7%).
- Going forward, we expect outlook of IPI growth to remain modest weighed by (i) higher downside risks to world economy; (ii) uneven global factory PMI; (iii) continuing normalization of E&E sector; and (iv) more moderate consumer and business expenditures as result of GST imposition. Nevertheless, robust crude oil production, boost from weak MYR beneficiaries (i.e. machinery and E&E) and ongoing infrastructure projects are expected to hold up IPI growth momentum ahead.
- The moderate IPI growth in Apr-May (+4.3% vs. +6.5% in 1Q15) is commendable given the expected pullback due to GST effect amid weaker trade and monetary indicators. We maintain our view of a blip in 2Q GDP growth to 4.3% (1Q: +5.6%). Nevertheless, we opine that GDP growth would rebound gradually in 3Q and back to normal path in 4Q, lifting 2H growth to 5.1% (1H: +5.0%). Hence, we keep our 5% growth forecast for 2015.
- On monetary policy, we still expect rate pause at 3.25% towards year end despite the more dovish MPS. Domestic growth and inflation are expected to stay within BNM target range of 4.5-5.5% and 2-3% this year. Risk of financial imbalances remains contained with resurgence of external uncertainty and volatility of late has yet to significantly dent domestic growth outlook.
Source: Hong Leong Investment Bank Research - 13 Jul 2015
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