• Industrial Production Index (IPI) expanded to 5.3% YoY in July (Jun: 5.0%), matching Bloomberg's consensus but lower than the house estimate of 7.0%
  
  − The expansion was mainly driven by strong growth in the manufacturing sector output and partly due to the low base effect, which partially mitigated the slowdown in the mining output.
  
  − On MoM, growth declined by 1.5% (Jun: 4.8%), following two consecutive months of expansion.

• The manufacturing index surged in July (7.7% YoY; Jun: 5.2%) driven by higher output in domestic and export-oriented sectors and partially aided by a low base effect
  
  − Domestic-oriented: expanded (7.5%; Jun: 4.6%) to a three-month high, due to higher output in other non- metallic mineral products (12.2%; Jun: 8.9%), and basic metals (10.5%; Jun: 8.0%).
  
  − Export-oriented: expanded significantly (7.8%; Jun: 5.4%), reaching a 22-month high in line with stronger export performance. This positive performance in production was mainly driven by a broad-based growth across sub- sectors, particularly in vegetable & animal oils & fats (21.9%; Jun: 11.0%), and computer, electronics & optical products (5.0%; Jun: 4.9%).
  
  − MoM (-2.0%; Jun: 6.1%): the index fell to a three-month low.

• Mining index slipped back into contraction (-5.0%; Jun: 4.9%), reversing the rebound in the previous month
  
  − Led by a decline in natural gas (-5.4%; Jun: 6.0%) and crude oil & condensate (-4.4%; Jun: 3.4%) production.
  
  − MoM (-2.1%; Jun: 4.0%): growth declined to a two-month low, reflecting a weaker performance for the sector.

• Electricity index rose sharply (7.0%; Jun: 3.5%) to a three-month high
  
  − MoM (5.4%; Jun: -6.2%): rebounded sharply, recovering from a steep decline in the previous month.

• We maintain our manufacturing index growth forecast at 4.6% for 2024 (2023: 0.7%)
  
  − Despite the latest Manufacturing Purchasing Managers' Index (PMI) remaining below the neutral rate of 50.0 for the third straight month (49.7; Jul: 49.7), we expect continued expansion in the manufacturing sector. This growth is largely due to the low base effect from last year, which saw weaker exports. The recovery in export-oriented industries, supported by a technology upcycle and rising demand for artificial intelligence (AI), is expected to further strengthen the sector.
  
  − Against this backdrop, we project 2024 GDP growth to reach 5.0% (2023: 3.6%), following better-than-expected 1H24 GDP growth of 5.1%. While we expect growth some moderation toward the year-end, growth will remain robust due to last year’s low base and resilient domestic demand, especially with higher tourist arrivals. Looking ahead, we maintain our 2025 base projection for growth to moderate to 4.8% as the low base effect fades, though uncertainty around the US and Chinese economies presents risks.

Source: Kenanga Research - 12 Sep 2024