Industrial production in April expanded by 4.2%, slightly above market expectations of 4.1%. This is on account of a strong rebound in mining, which mitigated a moderation seen in the manufacturing index. Moving forward, production is expected to be partly dampened due to a high base effect and the downside effects of fiscal consolidation on domestic consumption, as well as some uncertainties on economic growth in China and Japan. However, with a strong start to the year giving a boost in growth momentum, as well as further economic improvement in the US and Europe boosting production for exports, we are projecting the GDP to hit 5.5% this year.

- Industrial production in April expanded by 4.2% YoY, a slight moderation from 4.3% gained in March. However, it is marginally above market expectations for a 4.1% rise. Based on the 3-month moving average (3mma) though, production grew by 5.0%, above 4.8% previously. On a monthly comparison, production fell by 3.0% MoM whilst the seasonally adjusted index saw 3.6% MoM increase. For the first four months of the year, industrial production rose by 4.6% YoY, stronger than the 1.4% seen in the same period in 2013.

- The manufacturing sector grew by 4.0%, milder than the previous month’s 6.4%. On a monthly comparison, it fell by 2.8% MoM but still remains a positive 6.6% based on the 3mma and 4.1% based on the month-on-month seasonally adjusted index. Though exports, which have been performing above expectations of late, does take a fair chunk of total manufacturing, the average monthly expansion for the first four months of the year saw a decline of 0.3%, indicating that domestic demand has been on the weaker side, dampened by higher costs and the weaker ringgit.

- Upon closer scrutiny, the production of petroleum, chemical, rubber & plastic products (25% share of manufacturing) saw a 5.9% fall and a 10.8% MoM decline. At 16.6% share of total manufacturing, the manufacturing of E&E goods continues to expand by double-digits, recording a 14.2% YoY rise in April, falling in line with the 18.9% increase in exports in the same month. It expanded by 0.1% MoM.

- The non-metallic mineral products, basic metal and fabricated metal products (7.5% of total manufacturing), expanded at a slower pace of 3.0% YoY, from 4.4% previously and by 0.5% MoM whilst the transportation equipment & other manufactures sub-sector grew by 4.0% YoY, slower than 14.1% seen in the previous month. However, it recorded an 11.5% MoM rise. Though this subsector and sectors related to major infrastructure projects are expected to have continued steady expansion, the high base effect could very well yield a slower growth pace this year.

- On another note, manufacturing sales in April rose by 7.7% following a revised 9.8% in March (10.1% previously). On a monthly comparison, sales fell by 4.8% MoM but remains a positive 0.3% based on the seasonally adjusted value.

- Production in the mining sector rebounded in April, posting a 4.7% YoY increase after falling by 0.9% previously. This is on account of a rebound in both the extraction of crude petroleum & condensates (+5.8%) and production of natural gas (+3.5%). However, there was a 3.9% MoM decline in overall mining.

- Electricity production grew by 3.9% YoY (March: 4.6%) but fell by 2.1% MoM, in tandem with the moderate growth in output seen in the manufacturing sector.

- Strong growth in the 1Q14 is a welcome momentum boost to growth in the 2Q14, hopefully an aid to mitigate slower domestic consumption due to higher costs. Similarly, there are also some economic uncertainties pertaining to China’s internal restructuring and Japan’s tax hike impacting demand. However, ceteris paribus on the local front, there should be a rebound in domestic consumption once prices normalize. Along with continued economic recovery in the US and Europe, which will hopefully be further boosted by a stimulus package, it should hopefully bode well for overall growth this year. We are now looking at GDP to hit 5.5%, from our previously more cautious range of 5.0% - 5.5%.

Source: Kenanga