Higher Growth in Manufacturing Production Due to E&E Output

Growth in Malaysia’s industrial production index (IPI) rose slightly from 2.2% yoy in August to 2.3% in September, in line with market expectations. Growth in mining sector declined further from -4.6% yoy in August to -6.2% in September, attributed to the decline in crude oil production from -0.6% yoy in August to -6.3% in September. The magnitude of decline in LNG output improved from -8% yoy in August to -6.2% in September, but we believe the supply disruption in Kebabangan and Kinabalu fields in Sabah continues.

On a quarterly basis, growth in mining sector declined further from -2.8% yoy in 2Q18 to -5.6% in 3Q18, as crude oil production declined by -0.8% yoy in 3Q18 (2.3% in 2Q18), and the high base effect of LNG production from last year leads to a weaker LNG output growth at -9.8% (2Q18: -7.2%). As a result, growth in IPI slowed from 2.8% yoy in 2Q18 to 2.4% in 3Q18, dragged by a sharp slowdown in mining sector but supported by manufacturing output, which rose from 4.7% yoy to 4.8% in September.

Higher Growth in Majority of Manufacturing Goods Output

Growth in the manufacturing sector rose from 4.3% yoy in August to 4.8% in September, led by higher output across almost of its sub-components. Notably, output of electrical and electronic (E&E) products increased to 5.5% in September (4.5% in August), supported by higher output of computer, electronics and optical products (6.6%) and machinery and equipment (2.5%). This was reflected by continued strong growth in the semiconductor segment, which recorded a growth of 17.8% yoy in September, against 11% in the prior month. However, the sharp increase in Malaysia’s semiconductor production in September will likely slows in the months ahead, as according to the Semiconductor Industry Association (SIA), global semiconductor sales already showing signs of slowing down, from 14.9% yoy in August to 13.8% in September.

In the other export oriented industries, output of petroleum, chemical, rubber & plastic products also improved to 3.8% yoy in September, from 3.5% in August, led by higher output of coke and refined petroleum products (3.2%), chemicals and chemical products (2.9%) and rubber and plastic products (5.9%).

Aside from that, production of wood products, furniture, paper products, and printing also increased for the fourth consecutive month by 6.4% yoy in September, from 6.3% in August, its best reading since May 2017, due to stronger output of wood and products of wood and cork (8.3%) as well as furniture (12.0%). However, growth in textiles, wearing apparel, leather products & footwear slowed to 2.2% yoy in September (2.9% in August) driven mainly by lower output of wearing apparel (1.6%).

Similarly, in the domestic oriented industries, production of food, beverages and tobacco improved for the second consecutive month to 6.9% yoy in September, from 2.1% in August, driven by higher output of food products (7.4%), beverages (4.3%) and tobacco products (3.3%). Meanwhile, output of non-metallic mineral products, basic metal & fabricated metal products slowed for the second straight month to 4.6% yoy in September compared to 4.9% in the previous month, making this its slowest growth since March 2018. Output of transport equipment and other manufactures also slowed for the second consecutive month to 2.3% yoy in September from 7.4% in August.

On a quarterly basis, growth in manufacturing sector improved from 4.7% yoy in 2Q18 to 4.8% in 3Q18, with output of semiconductor related products posted a strong quarter, from 4.8% yoy in 2Q18 to 13.6% in 3Q18. Growth in electricity production, which increased slightly from 4% yoy in August to 4.2% in September, also improved on a quarterly basis, from 3.8% yoy in 2Q18 to 4.2% in 3Q18.

Real GDP growth is estimated to expand by 4.8-5.0% yoy in 3Q18

Department of Statistics Malaysia (DOSM) will be releasing the country’s 3Q18 GDP performance on 16 November 2018. We expect real GDP growth to expand by 4.8-5.0% yoy estimated for 3Q18, higher than the 4.5% in 2Q18. The improvement in economic performance for the quarter will be supported by domestic demand, particularly private consumption and private investment, as external demand is likely to be affected by various factors, such as US-China trade dispute, higher global crude oil price, and supply disruption in agricultural and mining sector. In 3Q18, we believe growth in private consumption will be supported by the tax holidays, with the abolishment of GST in June and reintroduction of SST in September. We are projecting Malaysia’s real GDP growth at around 5.0% in 2018, reflecting some slowdown in the country’s external demand, due to a higher base effect (5.9% in 2017).

Source: Affin Hwang Research - 12 Nov 2018