News

• IPI grew at a slower pace of +3.4% yoy (Sep: +4.7% yoy), lower than consensus estimate of +4.1% yoy. The moderation was attributed to slower growth in manufacturing (+4.2% yoy; Sep: +5.7% yoy) and mining activities (+0.8% yoy; Sep: +2.1% yoy) that offset the acceleration in electricity production (+4.6% yoy; Sep: +2.2% yoy (refer to Figure #1).

• MoM basis, IPI rose by +2.7%, the first growth after three consecutive months of contraction (Sep: -0.1%).

Comments

• The moderation in IPI growth emanated from manufacturing and mining sectors. Mining decelerated to +0.8% yoy (Sep: +2.1% yoy). Manufacturing production growth moderated to +4.2% yoy (Sep: +5.7% yoy), while that of electricity quickened to +4.6% yoy (Sep: +2.2% yoy). The weaker IPI growth was expected as base effect fades towards the end of the year.

• In the manufacturing sector, growth was affected by moderation in both the export-oriented sector (+3.6% yoy; Sep: +5.4% yoy) and domestic-oriented sector (+5.7% yoy; Sep: +6.6% yoy). In the domestic-oriented sector, output of food and beverage continued to soften to +7.0% yoy (Sep: +8.0% yoy). Transport equipment weakened to +4.8% yoy (Sep: +8.2% yoy), due to motor vehicles and repair and installation of machinery.

• Export-oriented sector recorded a slower pace of expansion following a slowdown in petroleum production (+0.7% yoy; Sep: +5.1% yoy) that offset the increase in pharmaceutical products (+9.2% yoy; Sep: +2.8% yoy). Meanwhile, E&E production continued its trend of moderation for the fourth consecutive month (+5.9% yoy; Sep: +6.7% yoy). This is in line with slower E&E export growth. Nevertheless, textile products grew at a faster pace during the month (+9.2% yoy; Sep: +8.6% yoy).

• Mining sector remained choppy as growth cooled to +0.8% yoy (Sep: +2.1% yoy). Crude oil output grew at a marginal rate of +0.3% yoy (Sep: +0.7% yoy), while natural gas production decelerated to +1.4% yoy (Sep: +3.9%). This was expected as the base effect from commissioning of new facilities (LNG Train 9 and PETRONAS’ FLNG Satu) wanes. Crude oil output is also expected 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 in expansionary mode as indicated by 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.

• Despite the moderation in IPI figures, overall economic growth is more entrenched as can be seen from strong 1Q- 3Q 2017 GDP figures (avg: +5.9% yoy) Hence, we maintain our expectation for BNM to normalise the policy rate by 25bps as early as January 2018.

Source: Hong Leong Investment Bank Research - 13 Dec 2017