News

• IPI grew at a faster pace of +5.0% yoy (Oct: +3.4% yoy), higher than consensus estimate of +4.6% yoy. The acceleration was attributed to faster growth in manufacturing (+6.7% yoy; Oct: +4.2% yoy) that more than offset the deceleration in mining production (+0.2% yoy; Oct: +0.8% yoy) and electricity production (+3.8% yoy; Oct: +4.6% yoy (refer to Figure #1).

• MoM basis, IPI declined by -1.4%, a reversal from the positive growth in the previous month (Oct: +2.7%).

Comments

• The acceleration in IPI growth emanated solely from the manufacturing sector. Manufacturing production growth quickened to +6.7% yoy (Oct: +4.2% yoy). Mining decelerated to +0.2% yoy (Oct: +0.8% yoy), while that of electricity slowed to +3.8% yoy (Oct: +4.6% yoy). Manufacturing activity benefited from the ongoing expansion in the sector amid low base effect.

• In the manufacturing sector, growth was affected by broad based acceleration in export-oriented sector (+6.8% yoy; +3.6% yoy) and domestic-oriented sector (+6.5% yoy +5.7% yoy). In the domestic-oriented sector, output of food and beverage quickened to +8.2% yoy (Oct: +7.0% yoy). Transport equipment strengthened to +6.9% yoy (Oct: +4.8% yoy) due to motor vehicles, trailers and semi-trailers production.

• Export-oriented sector recorded a faster pace of expansion. E&E production grew at a faster pace, breaking the moderation pattern for the past four consecutive months (+6.9% yoy; Oct: +5.9% yoy). This is in line with faster E&E export growth. Petroleum, chemical manufacturing products grew at a faster pace of +7.5% yoy (Oct: +2.1% yoy). Meanwhile, wood product manufacturing accelerated (+3.7% yoy; Oct: +0.2% yoy) that offset the decline in furniture products (-3.2% yoy; Oct: +1.2% yoy).

• Mining sector remained choppy as growth cooled to +0.2% yoy (Oct: +0.8% yoy). Crude oil output grew at a marginal rate of +0.4% yoy (Oct: +0.3% yoy), while natural gas production was flat compared to a year ago (Oct: +1.4% yoy). 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 synchronised across key economies.

• While the improvement in November IPI growth emanated mainly from manufacturing activities, the 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 - 12 Jan 2018