IPI grew at a faster pace of 4.6% YoY (Mar: 3.1% YoY), higher than consensus estimate of 4.4% YoY. The increase was influenced by broad-based acceleration across the sectors. Manufacturing production rose by +5.3% YoY (Mar: +4.1% YoY) while mining production increased by +1.8% YoY (Mar: 0% YoY). Similarly, electricity production rose further by +5.8% YoY (Mar: +4.4% YoY). In 2018, we expect GDP to grow at a more moderate pace of 5.3% YoY (2017: 5.9% YoY). Consequently, we maintain our expectation for BNM to maintain the policy rate at 3.25% for 2018.

DATA HIGHLIGHTS

In April, IPI grew at a faster pace of +4.6% YoY (Mar: +3.1% YoY). This is above the consensus estimate of +4.4% YoY. The faster growth emanated from higher increase in manufacturing production (+5.3% YoY; Mar: +4.1% YoY), mining production (+1.8% YoY; Mar: flat growth) and electricity production (+5.8% YoY; Mar: +4.4% YoY) (refer to Figure #1).

MoM seasonally adjusted basis, IPI rebounded by +1.5% after declining for the past two consecutive months (Mar: -0.2%; Feb: -4.4%)

In the manufacturing sector, growth was driven by acceleration in export-oriented sector (+4.6% YoY; Mar: +3.5% YoY) amid the steady growth in domestic-oriented sector (+5.2% YoY). In the domestic sector, production of non-metallic mineral products, basic metal and fabricated metal rose by +4.6% YoY (Mar: +4.5% YoY) while production of transport equipment continued to register faster increase of +6.8% YoY (Mar: +5.2% YoY). Meanwhile, production of food and beverage moderated to +4.8% YoY (Mar: +6.1% YoY) due to slower growth in food and decline in beverage product.

Within the export-oriented sector, E&E production grew at a stronger pace of +6.6% YoY (Mar: +5.7% YoY). Similarly, petroleum, chemical, rubber and plastic products accelerated by +3.1% YoY (Mar: +1.4% YoY). Wood products also rose at a faster pace of +3.6% YoY (Mar: +3.3% YoY). Similarly, textiles, wearing apparel and leather production also grew at faster pace of +4.0% YoY (Mar: +3.5% YoY).

Mining sector remained choppy as growth registered an increase of +1.8% YoY after recording flat growth in the previous month. This was due to the faster increase in crude petroleum (+4.4% YoY; Mar: +1.1% YoY) that offset the decline in natural gas production (-0.4% YoY; Mar: -0.9% 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. In May, global PMI data continued to expand, but at a slightly lower pace at 53.1 (Apr: 53.5). While growth in new orders (53.4; Mar: 53.8) and new exports (50.7; Mar: 51.0) moderated, inventory growth may be decreasing which could be positive for future production activity. In 2018, we expect GDP to grow at a more moderate pace (+5.3% YoY; 2017e: 5.9% YoY as base effect and inventory restocking activity wear 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 Jun 2018