Slowdown Was Reflected Across the Board

Growth in Malaysia’s industrial production index (IPI) slowed from a revised 5.4% yoy in January to 3% in February, slightly lower than market expectations of 3.3%. The lower-than-expected growth was reflected in all sectors, which we believed was partly due to seasonal factor as Chinese New Year fell in February, reducing the number of working days during the month. Among the sub-sectors, growth in mining sector led the slowdown, declining by 1.6% yoy in February (1.5% in January). This was attributed to the sharp drop in natural gas production (-3.5% yoy vs 1.4% in January), as well as lower production in crude petroleum (0.5% vs 1.7% yoy in January).

Similarly, growth in manufacturing production, which has the biggest weightage in IPI basket, also slowed from 6.9% yoy in January to 4.7% in February. This was attributed to consumer-related cluster, where food, beverages & tobacco slowed sharply from 16.1% yoy in January to 2.1% in February, while transport equipment fell by 2% yoy, after expanding by 3.5% in January. However, output of electrical & electronic remained steady at 5.4% yoy in February, albeit slightly lower than 5.7% in January. Other components showing some slowdown during the month, include textiles, wearing apparel, leather products & footwear (7.1%), wood products, furniture paper products & printing (3.6%), as well as non-metallic mineral products, basic metal & fabricated metal products (5%). In contrast, output of petroleum, chemical, rubber & plastic products increased by 7% yoy in February (6.2% in January). Slower mining and manufacturing activity also led to a slowdown in electricity output from 4.3% yoy in January to 2.8% in February.

Mixed Performance in Manufacturing Sector in February

On a cumulative basis, industrial production was up by 4.2% yoy in JanuaryFebruary, higher than 3.5% yoy in 4Q17, led by manufacturing output. As a result, we believe the contribution to GDP growth from the manufacturing sector will continue to be sustained in 1Q18, with the country’s real GDP growth projected to expand by 5.5% yoy estimated for 1Q18, from 5.9% in 4Q17, due partly to high base effect. However, we are maintaining our full year forecast of GDP growth at 5.3%, as compared to official forecast of 5.5-6.0%, but we reckoned that the downside risk remained on US-China trade war tariff and its impact on business sentiment.

Source: Affin Hwang Research - 12 Apr 2018