IPI grew at a faster pace of +4.2% YoY (Sep: +2.3% YoY), beating market expectations of +3.0% YoY. The growth was driven by an acceleration in manufacturing production (+5.4% YoY; Sep: +4.8% YoY) and recovery in mining production (+1.4% YoY; Sep: -6.2% YoY) which offset the moderation in electricity production (+2.1% YoY; Sep: +4.2% YoY). We expect GDP to remain moderate for the rest of the year and for BNM to maintain OPR in 2019.

DATA HIGHLIGHTS

IPI quickened to +4.2% YoY (Sep: +2.3% YoY), beating market expectations of +3.0% YoY. This was attributed to a rise in manufacturing production (+5.4% YoY; Sep: +4.8% YoY) and a recovery in mining production (+1.4% YoY; Sep: -6.2% YoY) which offset the moderation in electricity production (+2.1% YoY; Sep: +4.2% YoY) (refer to Figure #1). The faster growth in IPI was also in line with regional trend.

On a seasonally adjusted basis, IPI rebounded by +1.7% MoM (Sep: -0.4% MoM).

The acceleration in manufacturing sector was supported by a rise in both the domestic-oriented sector (+5.0% YoY; Sep: +4.9% YoY) and export-oriented sector (+5.6% YoY; Sep: +4.7% YoY). This was in line with October’s strong export performance (+17.7% YoY; Sep: +6.7% YoY). Growth in the domestic-oriented sector was mainly due to a surge in ‘transport equipment and other manufacturers’ (+10.1% YoY; Sep: +2.3% YoY). This was largely due to companies fulfilling previous orders and replacement of stocks following depletion during the tax-holiday period. Vehicle sales also registered a rebound (+0.5% YoY; Sep: -23.7% YoY). The strong transport equipment growth offset slower ‘food and beverage’ production (+2.6% YoY; Sep: +6.9% YoY) while ‘non-metallic mineral products, basic metal and & fabricated metal’ products held at +4.6% YoY (Sep: +4.6% YoY).

The export-oriented sector registered faster growth on the premise of stronger E&E production (+7.1% YoY; Sep: +5.5% YoY), in line with October’s surge in E&E exports (+23.3% YoY; Sep: +6.5% YoY) due to large shipments of electronic integrated circuits. Similarly, ‘petroleum, chemical, rubber and plastic products’ (+4.1% YoY; Sep: +3.8% YoY) and wood production (+6.5% YoY; Sep: +6.4% YoY) rose while textile production maintained the growth rate at +2.2% YoY (Sep: +2.2% YoY).

The mining sector posted its first positive growth since May as both crude petroleum (+0.4% YoY; Sep: -6.3% YoY) and natural gas production (+2.3% YoY; Sep: -6.2% YoY) rebounded. This may be due to the gradual resumption in production from the temporary cut in natural gas supply from the Sabah Oil and Gas terminal to the Petronas LNG Complex in Bintulu.

HLIB’s VIEW

On the global front, global PMI was unchanged in November (Oct: 52.0) as new orders and output growth remained below average. We expect continued growth in domestic activity for the rest of 2018 but nevertheless, the presence of downside risks remain. Rising uncertainty following the temporary US-China trade truce could weigh on sentiment and investment activity. On this note, we expect GDP to grow at a moderate pace of +4.7% YoY for 2018 and +4.6% YoY in 2019 (2017: +5.9% YoY). We maintain our forecast for BNM to retain the OPR at 3.25% in 2018 and 2019.

Source: Hong Leong Investment Bank Research - 13 Dec 2018