- Industrial production in February gained 6.7% YoY, following a revised growth of 3.5% (3.7% previously) in January. Higher than market expectations of 6.2%, this gain is mainly due to better than expected growth in the manufacturing sector. Technically, a sharper MoM contraction in February last year has partly contributed to the higher YoY growth this year. Based on the 3-month moving average (3mma), production increased by 5.1% YoY (January: 3.3%) On a monthly comparison, industrial production fell by 5.8% MoM but based on the seasonally adjusted index, it expanded by 2.9% MoM. Year-todate saw production rising by 5.1% YoY compared to a contraction of 0.7% seen in the same period a year ago.

- The manufacturing sector expanded by 9.8% in February, compared to a revised 4.8% recorded in January. On a monthly comparison however, there was a 4.2% contraction due to lesser working days on account of the shortest month of the year and companies winding down for the Lunar New Year. However, seeing that there was a 6.9% YoY expansion in the 3mma and a 3.7% MoM gain in the seasonally adjusted index though, the trajectory is pointing to further improvement moving forward.

- In closer detail, at 25% share of total manufacturing, the production of petroleum, chemical, rubber & plastic products sub-sector increased by 4.0% YoY, slower that the 6.7% gained previously. On a monthly basis, it saw a 4.5% MoM fall. The manufacturing of E&E goods (16.6% share of manufacturing) saw a strong double-digit rise of 16.4%, following a 15.0% increase previously. On a month-on-month basis however, it fell by 3.9% MoM.

- The non-metallic mineral products, basic metal and fabricated metal products (7.5% of total manufacturing) saw a 3.6% YoY (January: -4.2%) increase and a 5.0% MoM fall in production whilst the transportation equipment & other manufactures sub-sector expanded by 52.5% (January: 3.5%). On continuous infrastructure expansion and construction under the ETP and those proposed under Budget 2014, expansion in these two sub-sectors should remain steady throughout the year, though possibly at a slower pace due to a high base effect.

- On another note, manufacturing sales in February rose by 16.1% from a revised 11.4% gain in January. On a monthly comparison, sales contracted by 3.9% MoM but saw a 3.0% increase based on the seasonally adjusted value.

- Production from the mining sector contracted by 1.4% YoY, from a 0.7% gain previously. This is due to a 3.1% fall in extraction of crude petroleum oils & condensates. However, there was a 0.4% YoY gain from the production of natural gas.

- Electricity production grew by 8.7% YoY (January: 0.2%) but fell by 5.5% MoM. This is in tandem with the manufacturing sector, in light of factory closure due to public holidays and a shorter working month.

- With both industrial production and exports for the first couple of months of the year performing steadily despite the shorter working days, it is a good start to what we hope is a gradual uptrend for the rest of the year. Going by the current trajectory, manufacturing output is estimated to expand by 5.3% in 1Q14 from 4.9% in 4Q13. Hence, we are looking at the 1Q14 GDP to expand by 5.1%, a repeat of 4Q13. However, we still remain on the cautious side when it comes to the full-year growth due to the downside effects of fiscal consolidation and uncertainties prior and post GST implementation, pulling back domestic consumption. There are also worries surrounding the economic situation in China and Japan, both very important trade partners with Malaysia. Hence, we are looking at a GDP growth to expand within the range of 5.0% to 5.5% in 2014.

Source: Kenanga