IPI grew at a slower pace of 3.0% YoY from an upwardly revised rate of 5.4% YoY in Jan (prior: 3.0% YoY). This is slightly lower than consensus estimate of 3.2% YoY. Moderation was broad-based as manufacturing decelerated (+4.7% YoY; Jan: +6.9% YoY ), electricity moderated (+2.8% YoY; Jan: +4.3% YoY) and mining declined (-1.6% YoY; Jan: +1.5% YoY) due largely to seasonal factors. In 2018, we expect GDP to grow at a more moderate pace but remain firm at 5.3% YoY (2017: 5.9% YoY). Consequently, maintain our expectation for BNM to maintain the policy rate at 3.25% for 2018.

DATA HIGHLIGHTS

In February, IPI grew at a slower pace of +3.0% YoY from an upwardly revised rate of 5.4% YoY in January (prior: +3.0% YoY). This is slightly lower than consensus estimate of +3.2% YoY. The moderation was broad-based emanating from the moderation in manufacturing sector (+4.7% YoY; Jan: +6.9% YoY), decline in mining sector (-1.6% YoY; Jan: +1.5% YoY) and slower growth in electricity sector (+2.8% YoY; Jan: +4.3% YoY). (refer to Figure #1).

MoM basis, IPI declined by -10.3%, due to seasonal factors such as shorter working month compounded by different timing of Chinese New Year celebrations (Jan: +1.5%). In the manufacturing sector, growth was affected by slight moderation in export oriented sector (+6.1% YoY; Jan: +5.9% YoY) and sharper deceleration in domestic oriented sector (+2.1% YoY; Jan: +8.9% YoY).

In the domestic sector, production of food and beverage registered a slower pace of growth (+2.1% YoY; Jan: +16.1% YoY). Production of transport equipment declined by -2.1% YoY (Jan: +3.5% YoY).

In the export-oriented sector, E&E production moderated slightly to +5.5% YoY (Jan: +5.7% YoY). Refined petroleum products also decelerated to +7.1% YoY; Jan: +6.2% YoY). In addition, production of textiles, wearing apparel and leather grew at a slower pace of +7.2% YoY (Jan: +9.4% YoY).

Mining sector remained choppy as growth declined by -1.6% YoY after growing by +1.5% YoY in the previous month. The decline was due to contraction of natural gas production (-3.5% YoY; Jan: +1.5% YoY) that offset the slight increase in crude oil output (+0.5% YoY; Jan: +1.8% YoY). Mining sector 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 until the end of 2018.

HLIB’s VIEW

Near-term outlook for manufacturing IPI remains in expansionary mode as indicated by forward indicators. Despite the moderation in monthly global PMI manufacturing data, 1Q 2018 average was steady at 53.9 (4Q 17: 54.0). In addition, global semiconductor chip sales grew by +21.0% YoY as growth was broad-based across all regions. Nevertheless, we expect manufacturing growth to be more moderate as global restocking activity comes to an end.

In 2018, we expect GDP to grow at a more moderate pace (+5.3% YoY; 2017e: 5.9% YoY as base effect wears off. Consequently, we maintain our expectation for BNM to maintain the policy rate at 3.25% for the rest of 2018.

Source: Hong Leong Investment Bank Research - 12 Apr 2018