HLBank Research Highlights
ECONOMIC UPDATE - Performance of IPI (December 2015) -
News
- IPI growth rebounded to 2.7% yoy in Dec (Nov: +1.8% yoy), higher than market expectations of a 1.0% yoy gain. The pickup was driven by a more moderate decline in mining output amid stronger electricity production during the month (refer to Figure #1).
- MoM basis, IPI rose by 5.4% (Nov: -4.6% mom) due to sharp sequential rebound in all sub-segments.
- For the period of 4Q15, IPI inked a slower growth of 2.9% yoy (3Q15: +4.5% yoy), dragged mainly by the decline in mining output (-2.4% yoy; 3Q15: +4.7% yoy).
Comments
- The rebound in IPI growth was mainly on account of slower mining contraction amid stronger electricity production. Manufacturing output growth was stable during the month at 4.0% yoy.
- The relatively unchanged manufacturing expansion was due to stronger export-oriented sector (+4.8%; Nov: +3.6%) which offset a slowdown in domestic-oriented sector (+2.2%; Nov: +5.3%). Notably, the recovery in refined petroleum (+0.4%; Nov: -4.6%) and stronger wood products & furniture (+6.1%; Nov: +5.9%) helped to strengthen export-sector growth. E&E products grew at a slower but still respectable growth of 8.6% (Nov: +9.3%).
- Within the domestic sub-sectors, the slower growth was led by a slowdown in transport equipment (+1.4%; Nov:+8.3%) and F&B industry (-0.2%; Nov: +4.6%).
- Mining output continued to decline but at a slower pace (-1.5% yoy; Nov: -4.1% yoy). Both crude oil output and natural gas production were still in the negative territory (-0.3% & -3.0% respectively). High base effect has already kicked in (Gemust-Kakap commenced production in Oct- Nov 2014), resulting in a more choppy mining output.
- Near-term outlook for IPI remains challenging. Forward indicators (i.e. intermediate imports, global PMIs, world chip sales, and business confidence) continued to reflect lackluster global and domestic economic onditions. The persistent adjustment in China’s industri al sector and subdued commodity price outlook would still ndermine global demand ahead.
- In a separate release, the Services Index rose by a stronger pace of 4.8% yoy in 4Q15 (3Q15: +4.1% yoy), driven mainly by recovery in finance (-1.6%; 3Q15: -3.3%) and distributive trade (+6.2%; 3Q15: +5.3%). Offsetting the slower IPI growth in 4Q15, we maintain our GDP growth estimate of 4.7% yoy for 4Q15 (3Q15: +4.7% yoy). We also maintain our 2016 full-year GDP growth forecast at 4.2% (2015e: +5.0%).
- We opine that the pace of GDP slowdown stil does not warrant an imminent OPR cut. We expect BNM to wait for the fiscal measures to take effect (EPF contribution rate cut & tax relief) before assessing the need to lower the OPR.
- Maintain our view of no change in OPR for now.
Source: Hong Leong Investment Bank Research - 12 Feb 2016
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