News

• IPI growth moderated to +4.7 yoy in Dec (Nov: +6.2% yoy), slightly higher than consensus forecast of +4.0% yoy. The expansion in IPI reflected a moderation in manufacturing and electricity sub-sectors (refer to Figure #1).

• On seasonally adjusted basis, IPI rose by +0.9% mom (Nov: +0.8%) following an increase in mining sub-sector.

• For 2016, IPI slowed to +3.8% yoy (2015: +4.7% yoy).

• For 4Q16, IPI expanded at a faster pace of +5.0% yoy (3Q16: 3.9% yoy) due to increase in mining and manufacturing sectors.

Comments

• The moderation in IPI growth was due to slower growth in manufacturing and electricity sub-sectors. Griwth in manufacturing production slowed to +4.3% yoy (Nov: +6.5% yoy) while electricity output moderated to +6.1% yoy (Nov: +9.7% yoy). Meanwhile, mining production grew at a faster pace (+5.8% yoy; Nov: +5.4% yoy).

• In the manufacturing sector, growth moderated following slower pace of expansion domestic-oriented (+3.6% yoy; Nov: +4.6% yoy) and export-oriented sectors (+4.5% yoy; Nov: +7.2% yoy). In the domestic-oriented sector, slower growth emanated from the food and beverage sub-sector (8.8% yoy; Nov: 10.4% yoy). The transportation sub-sector recorded a decline, albeit at a slower pace of contraction (-0.9% yoy; Nov: -6.1% yoy).

• Similarly, export-oriented sector recorded a slower growth following moderation across all sub-sectors, including the E&E sub-sector (+5.2% yoy; Nov: +8.9% yoy). This is also consistent with slower expansion in December’s E&E export performance. While global chip sales continued to advance for the fifth consecutive month on a yearly basis in December (+12.3% yoy; Nov: +7.4% yoy), it was flat on month-on-month terms.

• Mining sector remained choppy and increased by +5.8% yoy in December (Nov: +4.7% yoy) as crude oil output rebounded by +0.1% yoy (Nov: -1.9% yoy) while natural gas production maintained its double-digit expansion (+12.7% yoy; Nov: +13.2% yoy). The increase in oil production was partly due to commencement of production in Malikai in December 2016.

• Following higher manufacturing and mining growth in 4Q16, coupled with resilient 4Q16 services index (+5.9% yoy; 3Q16: +6.2% yoy) and slower decline in oil palm production (-5.7% yoy; 3Q16: -14.3% yoy), we raise our 4Q16 GDP growth estimate to +4.5% yoy (previously: +4.2% yoy) while maintaining 2016 full year estimate at +4.2%. We also reiterate our 2017 GDP forecast at 4.5% premised on a recovery in the primary sector, strong construction and stable services offsetting slower manufacturing growth.

• We retain our forecast for BNM to maintain policy rate at 3.00% in 2017 due to expectations of firmer growth and higher inflation.

Source: Hong Leong Investment Bank Research - 13 Feb 2017