● Industrial Production Index (IPI) edged down to 0.3% YoY in October, its lowest since February 2013, undershooting market expectation and house forecast (consensus: 1.6%; KIBB: 1.3%)

- Attributable to a sharp drop in mining output and slower manufacturing and electricity activities.

- MoM: rebounded sharply after four straight months of contraction (3.2%; Sep: -0.3%).

- MoM seasonally adjusted (SA): further decline to twomonth low (-1.0%; Sep: -0.3%)

- Year-to-date: softened to 2.5% YoY (Jan-Oct 2018: 3.1%), within house growth expectation.

● Manufacturing index extended its slowdown for three straight months (2.2%; Sep: 2.5%) in line with slower manufacturing sales (2.2%; Sep: 2.9%).

- Manufacturing hit a 79-month low, led by weakening in the export-oriented sub-sectors, in particular, the manufacturing of petroleum, chemical, rubber & plastic products (1.0%; Sep: 2.1%) and transport equipment & other manufactures (4.3%; Sep: 6.3%).

- Electrical & electronic products (E&E) seemed to hold up as it expanded for the second straight month (2.4%; Sep: 0.8%).

● Mining index fell to a 3-month low (-5.8%; Sep: -1.6%) on lower base effect and slower output

- Led by a decline in natural gas output (-6.3%; Sep: +1.1%), followed by a further drop in extraction of crude oil & natural gas (-5.8%; Sep: -1.6%), and a bigger decline in crude petroleum (-5.1%; Sep: -4.7%)

- The mining sector is expected to remain under pressure following OPEC+ compliance to slash further its output to 1.7m barrels a day next year from the initial target cut of 1.2m barrels a day in a bid to prop up oil prices.

● Electricity index moderated (0.5%; Sep: 4.1%) on lower demand, signalling lacklustre in industrial activities.

● The October industrial output performance reaffirmed our GDP forecast of a slower growth of 4.0% in 4Q19 (3Q19: 4.4%), bringing about the whole year projection of 4.5% (2018: 4.7%)

- Subdued industrial production in the immediate term as reflected in Manufacturing PMI’s 14-month contraction, though it has improved recently (Nov: 49.5; Oct: 49.3).

- Economic growth faltered in major markets, including China (3Q19: 6.0%; 2Q19: 6.2%), the EU (3Q19: 1.3%; 2Q19: 1.4%) and Singapore (3Q19: 0.1%; 2Q19: 0.1%) are expected to weigh on domestic manufacturing activities.

- Heightened risk on the trade war front, though there is a sign of optimism towards achieving a phase-one trade deal between the US and China. However, existing tariffs would further weigh on trade activities in the immediate term, reaffirming our slower GDP growth trajectory (4Q19: 4.0%) and possibly spilling over into 1H20.

Source: Kenanga Research - 13 Dec 2019