● Industrial Production Index (IPI) picked up to a fivemonth high in November (2.0% YoY; house estimate: 1.6%; consensus: 1.0%; Oct: 0.3%)

- Attributable to a rebound in the mining index and a low base a year ago.

- MoM: sharpest decline in seven months (-1.1%; Oct: 3.2%).

- Year-to-date: softened to 2.4% YoY (Jan-Nov 2018: 3.0%), in line with expectation of growth slowdown.

● Manufacturing index edged up (2.5%; Oct: 2.2%) on a low base, similar to the slight uptick in manufacturing sales (2.3%; Oct: 2.2%)

- Led by improvement in the production of petroleum, chemical, rubber & plastic products (2.0%; Oct: 1.0%) and food, beverages & tobacco (2.2%; Oct: 0.8%).Output of electrical & electronic products (E&E) registered softer growth (1.1%; Oct: 2.4%) as it remained stifled by the downturn in the global chip market.

- MoM: sharpest fall in 9 months (-2.7%; Oct:1.9%)

● Mining index charted its first expansion in five months (0.5%; Oct: -5.8%) following two straight months of MoM gain (+4.9%; Oct: 8.8%)

- Broad-based improvement, backed by gains in the extraction of crude oil and natural gas (0.5%; Oct: -5.8%) and natural gas output (3.7; Oct: -6.3%), amid higher average Brent crude oil price (USD63.2/barrel; Oct: USD59.7/barrel).

● Electricity index increased to 1.6% (Oct: 0.5%), mirroring seasonal pick up in industrial activities.

● Industrial production to remain soft in the immediate term, but with a potential recovery in the 2H20

- Manufacturing sector to soften in the 1H20, before gradually recovering in the 2H20 on a projected upturn in the tech sector, lagged impact from the recent cycle of monetary easing and expansionary fiscal measures.

- Headwinds remain arising from developments on the US-China trade negotiation and potentially weaker growth trajectory of major economies.

- Overall, the manufacturing IPI is expected to moderate slightly to 3.1% in 2020 (2019F 3.5%; 2018:4.8%) in line with the slower GDP growth forecast of 4.3% (2019F: 4.5%).

Source: Kenanga Research - 13 Jan 2020