News

• IPI growth moderated to +3.5 yoy in Jan (Dec: +4.7% yoy), lower than consensus forecast of +5.3% yoy. The expansion in IPI reflected a moderation in mining and electricity sub-sectors (refer to Figure #1).

• On a month-on-month basis, IPI declined by -4.6% (Jan: +4.2%) following a broad-based decline in all sub-sectors.

Comments

• The moderation in IPI growth was due to slower growth in mining and electricity sub-sectors. Mining production slowed to +1.1% yoy (Dec: +5.8% yoy) while electricity production moderated to +1.1% yoy (Dec: +6.1% yoy). Meanwhile, manufacturing production grew at a slightly faster pace (+4.6% yoy; Dec: +4.3% yoy).

• In the manufacturing sector, growth improved following an acceleration in domestic-oriented production (+4.3% yoy; Dec: +3.6% yoy) and slight improvement in export-oriented sector (+4.7% yoy; Dec: +4.5% yoy). In the domestic oriented sector, the faster growth emanated from transportation sub-sector +3.2% yoy (Dec: -0.9% yoy) that offset the moderation in the food and beverage sub-sector (+6.8% yoy ; Dec: +8.8% yoy).

• Export-oriented sector recorded a slightly faster pace of expansion following faster growth in apparel sub-sector (+6.7% yoy; Dec: +4.9% yoy), wood products (+6.8% yoy; Dec: +5.3% yoy) and E&E sub-sector (+6.9% yoy; Dec: +5.2% yoy). Despite the faster pace of annual expansion, output of E&E products declined on a monthly basis. Similarly, January global chip sales also advanced for the fifth consecutive month on a yearly basis in January (+14.0% yoy; Dec: +12.3% yoy) but declined on a monthly basis.

• Mining sector remained choppy with growth tapering to +1.1% yoy in January (Dec: +5.8% yoy) as crude oil output declined by -2.4% yoy (Dec: +1.8% yoy) while pace of natural gas production moderated sharply to +5.3% yoy (Dec: +15.3% yoy). We believe the decline in crude oil output reflected the decision taken by OPEC and non OPEC members to jointly curtail oil output from January 2017 for 6 months to ease global glut (Petronas committed to 20,000bpd cut).

• Nevertheless, near-term outlook for IPI continues to show signs of optimism following expansion in some of the forward indicators (i.e. global PMIs, world chip sales, and business confidence). Downside risks remain following structural global constraints and rising anti-protectionism threats.

• Despite the moderation in January IPI due to seasonal and supply factors (i.e. oil output cut), we maintain our 2017 full-year GDP growth forecast at 4.5% driven mainly by the primary and construction sectors.

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

Source: Hong Leong Investment Bank Research - 14 Mar 2017