Industrial production registered a moderate growth in September, posting a 5.4% growth following a 6.5% gain in August. This is largely on account of weaker manufacturing output but was partly mitigated by strong growth in mining. Nevertheless, manufacturing, particularly Electronics and Electricals (E&E), is expected to remain steady on global E&E demand, with the USA as the frontrunner. However, due to uncertainties pertaining to growth in the Eurozone, Japan and China, coupled with facing a high base effect, we anticipate overall growth to taper in the 2H14. The moderate pace of manufacturing output poses a downside risk on the overall 3Q14 GDP growth, of which we estimate will moderate to 5.8% from 6.4% in the 2Q14. That being said, overall momentum from the 1H14 and an expected consumer boost surrounding the year-end festivities should help support our GDP 2014 forecast of 6.0% (4Q14 estimate: 5.5%).       

- Industrial production in September saw an annual growth of 5.4% YoY, following a 6.5% rise in August. This is a tad below market polls of 5.5%. The 3-month moving average (3mma), which helps smoothen out seasonal distortions, saw production increasing by 4.1%, a slower pace than the 4.6% previously. On a monthly comparison, production rose 0.9% MoM (August: 2.0%) whilst the seasonally adjusted month-on-month growth saw a 0.2% fall.

- For the whole of the 3Q14, industrial production growth averaged at 4.1% YoY compared to 5.9% in 2Q14. Year-to-date production growth averaged at 4.9%, compared to 3.6% in the same period on 2013.

- The manufacturing sector moderated to 4.7% YoY after posting a 7.4% expansion in August. This was in spite of a MoM increase of 2.1% MoM and a turnaround from a 0.6% fall in August, reflecting the higher base effect. Meanwhile, the manufacturing 3mma saw a 5.0% YoY growth, slower compared to 6.5% in August. Industrial production registered a moderate growth in September, posting a 5.4% growth following a 6.5% gain in August.

- For the whole of the 3Q14, manufacturing growth averaged at 5.1% from 7.4% seen in the 2Q14, largely due to a high base effect. The 0.9% quarter-on-quarter growth however, is synonymous with slower consumer demand due to a lull between the summer season (for the northern hemisphere) and before the year-end festivities. At the same time, the slower than expected rebound from Japan, China and the Eurozone pulled down overall global growth. Nonetheless year-to-date growth for the sector averaged at 6.5% YoY, relatively higher versus 4.0% in the same time frame in 2013.

- Looking into the sub-sectors of manufacturing, the production of petroleum, chemical, rubber & plastic products (25% share of manufacturing) saw a 1.0% YoY fall (August: +0.3%) and a 2.5% MoM decline. Output of electrical and electronics (E&E) goods (16.6% share) still relatively resilient at 9.7% YoY, albeit a slower growth pace to August’s 11.9%. It still managed an 8.9% MoM expansion, which means that it’s likely to remain strong moving forward. This is further supported by the global semiconductor sales, which recorded US$29.0b worth of sales (+8.0%) in September.

- The production of non-metallic mineral products, basic metal and fabricated metal products (7.5% share) increased by 7.8% YoY (August: 8.3%) and 3.0% MoM whilst the transportation equipment & other manufactures sub-sector saw 4.9% YoY expansion in growth. This is significantly slower than the 18.8% posted in August.  However, this is likely a result of a high base effect as the monthly comparison saw a 5.0% MoM expansion. The annual growth is likely to see a tapered pace due to a high base but will in actuality remain steady years to come on multiple development and infrastructure projects leading up to 2020.

- On a side note, manufacturing sales in August rose by 4.1% YoY (August: 5.0%) but fell by 0.6% MoM. The seasonally adjusted value recorded a 2.3% MoM decline.

- In the mining sector, production grew by 7.1% YoY following a 3.6% rebound in August. This is mainly due to a 9.5% (August: -0.3%) increase in the extraction of crude petroleum & condensates. The production of natural gas however, moderated to 4.6% (August: 8.2%). Overall mining fell by 2.1% MoM but still managed a positive 0.2% MoM based on the seasonally adjusted index. For the whole of 3Q14, production averaged at 0.8% YoY, versus 1.9% seen in the 2Q14.

- Electricity production grew by 6.2% YoY but fell by 2.2% MoM and by 0.9% based on the seasonally adjusted index. For the 3Q14, it averaged at 6.5% YoY from 4.8% in the 2Q14.

- Despite the moderation, manufacturing, especially E&E manufacturing, is expected to remain robust moving forward. As a whole however, the 3Q14 GDP is estimated to moderate to 5.8% from 6.4% in the 2Q14 due to weaker than expected global growth (the USA being the exception). For the whole of 2014, momentum from the 1H14 (6.3%) and year-end festivities should help mitigate downside effects in the 2H14 (forecast: 5.7%) and achieve a GDP growth of 6.0% for 2014.

Sourec: Kenanga