News

• IPI growth grew at a faster pace of +6.1% yoy (Jun: +4.0% yoy), higher than consensus estimate of +5.1% yoy. The acceleration in manufacturing (+8.0% yoy; Jun: +4.7% yoy) and electricity growth (+7.9% yoy; Jun: +2.1% yoy) offset the moderation in mining sector (+0.2% yoy; Jun: +2.4% yoy) (refer to Figure #1).

• IPI declined by -0.3% after increasing by +1.7% mom in the previous month.

Comments

• The acceleration in IPI growth emanated from manufacturing and electricity sub-sectors. Manufacturing production expanded by +8.0% yoy (Jun: +4.7% yoy), electricity accelerated to +7.9% yoy (Jun: +2.1% yoy). Meanwhile mining output growth slowed to +0.2% yoy (Jun: +2.4% yoy). The strong IPI growth was partly aided by low base effect (timing difference in Raya festivities).

• In the manufacturing sector, growth was driven by faster expansion in the export-oriented sector (+6.6% yoy; Jun: +5.1% yoy) while domestic-oriented sector rebounded strongly (+11.6% yoy; Jun:-2.8% yoy). In the domestic oriented sector, output of transport equipment picked-up by +6.8% yoy after declining by -28.7% yoy in the previous month partly due to shorter working days during Hari Raya festival. Meanwhile, other domestic-oriented sectors such as food and beverage sub-sector grew by double-digit pace of +19.1% yoy (Jun: +6.7% yoy).

• Export-oriented sector recorded a faster pace of expansion following acceleration across the board. Petroleum, chemical, rubber and plastic products rose by +3.8% yoy (Jun: +2.8% yoy) while wood products, furniture grew at a faster pace of +4.0% yoy (Jun: +2.1% yoy). The faster growth in E&E production (+10.5% yoy; Jun: +8.3% yoy ) is consistent with the faster pace of growth in E&E exports (28.5% yoy; Jun: +15.1% yoy). Meanwhile, textile, wearing apparel & leather products advanced further by +9.5% yoy (Jun: +8.5% yoy).

• Mining sector remained choppy as growth slowed to +0.2% yoy (Jun: +2.4% yoy). Crude oil output contracted by -3.8% yoy (Jun: +0.8% yoy) while natural gas production accelerated further to +5.5% (Jun: +4.4% yoy). We continue to expect crude oil output to remain volatile in the near-term following Petronas commitment to reduce 20,000bpd in line with OPEC and non-OPEC action to curtail output.

• Near-term outlook for manufacturing IPI remains favourable with continued expansion in forward indicators (i.e. global PMIs, world chip sales, and business confidence). Downside risks have diminished as global growth has become more synchronized across key economies.

• We maintain our forecast for 2017 GDP growth forecast of 5.4%, factoring in a more moderate growth in 2H17 mainly due to base effect. Maintain our forecast for BNM to hold OPR unchanged at 3.0% in 2017.

Source: Hong Leong Investment Bank Research - 12 Sept 2017