Industrial production in January expanded by 3.7% YoY, following a growth of 2.3% at the final month of 2013. Though this is below market and our own expectation for a 4.2% increase, the index has been rebased to the year 2010, from 2005 previously. On a monthly comparison, industrial production fell by 3.6% MoM and based on the seasonally adjusted index, it fell by 2.8% MoM. Based on the 3-month moving average (3mma) however, production gained 1.7% YoY (December: 0.7%).

 The manufacturing sector expanded at a slower pace of 4.7% in January, compared to the 6.1% gained in December. The 3mma saw a 4.4% YoY growth, from 4.8% previously. On a monthly comparison, it contracted by 4.3% MoM. The fall in monthly production was expected in light of fewer working days in the month of January due to multiple holidays in that month. The same could be seen in the month of February, due to the Lunar New Year holidays and it being a shortest month of the year.

 In further detail, at 25% share of total manufacturing, the production of petroleum, chemical, rubber & plastic products sub-sector increased by 6.7% YoY from 0.9% previously. On a monthly basis, there was a 0/2% fall in its production. The manufacturing of E&E goods (16.6% share of manufacturing) saw a 13.3% YoY growth, following a 14.2% expansion in preceding month and fell by 2.1% MoM on a monthly basis.

 The transportation equipment & other manufactures sub-sector expanded by 4.7% YoY (December: 14.2%), its slowest pace seen in recent years, a somewhat expected tapering due to a high base effect. Similar could be said about the non-metallic mineral products, basic metal and fabricated metal product sub-sector, of which production fell by 1.6% in January. However, on continuous infrastructure expansion and construction under the ETP as well as those proposed under Budget 2014 alongside external demand recovery, production in these sub-sectors should remain somewhat steady, albeit at a slower pace due to a high base effect.

 On another note, manufacturing sales for the first month of the year increased by 12.3%, from a revised 4.8% gain in December. On a monthly comparison, sales expanded by 1.8% MoM and by 0.7% MoM based on the seasonally adjusted value.

 Production from the mining sector increased by 1.5% YoY in January, a slightly slower pace to 2.7% that was seen in December; on account of the 0.1% YoY (December: -17.3%) growth in the extraction of crude petroleum oils & condensates and the 2.7% YoY (December: 27.1%) gain from the production of natural gas.

 Electricity production grew by 0.2% YoY (December: 6.0%) but fell by 2.3% MoM. This is mainly on slower production from the manufacturing sector, in light of factory closure due to public holidays.

 Growth of industrial activities in the first couple of months of the year is expected to be a little bit skewed due to the shorter working days in light of the public holidays. However, at 3.7% it is the strongest annual growth seen in 6 months, showing resilience despite the holidays. Similarly, external demand seems to be heading for a strong recovery (exports expanded by 12.2% YoY in January), which we reckon will continue throughout the year and become one of the main drivers of growth in 2014. On a relatively strong start to production and exports, alongside continued expansion of projects under the ETP, we are looking at the 1Q14 GDP to grow by 5.1%, a repeat of 4Q13 growth. Looking forward, we expect the momentum of the global demand recovery to gradually pick up. However, we lean on the more cautious side when it comes to full-year growth as we feel that there are downside effects of fiscal consolidation as well as uncertainties prior and post GST implementation mitigating domestic consumption and therefore overall economic growth. Hence, we are looking at a GDP growth to expand within the range of 5.0% to 5.5% in 2014. 

Source: Kenanga