DATA HIGHLIGHTS

IPI moderated to +2.5% YoY from previous growth of +4.3% YoY. The moderation was driven by deceleration in manufacturing production (+3.6% YoY; Oct: +5.4% YoY) and marginal decline in mining production (-0.7% YoY; Oct: +1.4% YoY) that offset the rise in electricity production (+3.2% YoY; Oct: +2.8% YoY). (refer to Figure #1). Slower IPI growth was also seen across neighbouring countries.

On a Seasonally Adjusted Basis, IPI Decelerated to +0.1% MoM (Oct: +1.7% MoM).

The moderation in manufacturing sector was driven by slower growth in the domestic oriented sector (+2.4% YoY; Oct: +5.0% YoY) and export-oriented sector (+4.2% YoY; Oct: +5.6% YoY). In the domestic sector, there was a decline in ‘food, beverages & tobacco’ production (-2.6% YoY; Oct: +2.6% YoY) and moderation in ‘non-metallic mineral products, basic metal and & fabricated metal’ products (+4.1% YoY; Oct: +4.6% YoY) as well as ‘transport equipment and other manufacturers’ (+8.3% YoY; Oct: +10.1% YoY). The slower transport equipment growth was in line with decline in vehicle sales (-1.8% YoY; Oct: +0.5% YoY) as buyers front-loaded their purchases during the tax-holiday period that led to slower production activity.

Export-oriented sector also showed a moderation of +4.2% YoY (Oct: +5.6% YoY). This was consistent with the weaker export performance in November (+1.6% YoY; Oct: +17.7% YoY). The export-oriented sector slowed on account of moderation in ‘petroleum, chemical, rubber and plastic products’ (+3.4% YoY; Oct: +4.1% YoY), wood (+2.8% YoY; Oct: +6.5% YoY) and E&E production (+5.3% YoY; Oct: +7.1% YoY). The moderate E&E production was in line with the decline in E&E exports (- 1.7% YoY; Oct: +23.3% YoY). We anticipate that this could partly be a result of normalisation of front-loading activity that took place in the previous month and lower global demand. Meanwhile, textile production rose (+4.8% YoY; Oct: +2.2% YoY).

The mining sector declined as the reversal in natural gas production (-1.8% YoY; Oct: +2.3% YoY) offset the marginal rise in crude petroleum production (+0.6% YoY; Oct: +0.4% YoY). LNG production is expected to pick up in 2019 as the disruption caused by the associated pipeline gas leak is anticipated to recover. According to Petronas, production at the Kebabangan gas field in Sabah was expected to return to full capacity by August 2019.

HLIB’s VIEW

On the global front, December global PMI fell to a 27-month low of 51.5 (Nov: 52.0) as new orders slowed and output growth remained below average. The outlook for 2019 remains subdued as global economy encounters a slowdown due partly to current trade tensions between US and PR China. Following the latest trade talk, optimism is on the rise for a trade agreement to be reached. Nevertheless, we remain cautious on the success of the talks and we await details of the agreement at the end of the 90 day negotiation period. As uncertainty remains, we expect sentiment and investment activity to be curtailed. 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).

Source: Hong Leong Investment Bank Research - 14 Jan 2019

Source: Hong Leong Investment Bank Research - 14 Jan 2019