Thursday, 12 January 2017

(The Star) Factory output up in November

Q4 economic growth forecast on track with the higher IPI
PETALING JAYA: Factory output as measured by the industrial production index (IPI) unexpectedly rose in November, suggesting strength in Malaysia’s economic growth in the final quarter of last year.
Data from the Statistics Department showed the IPI – a measure of output from factories, power plants, and mines – had increased at a faster pace of 6.2% year-on-year (y-o-y) last November, compared with a 4.2% y-o-y growth in the preceding month.
The broad-based growth in IPI, led by a surge in electricity, manufacturing and mining output, beat market expectations for a 5.5% y-o-y increase.
According to Nomura Research, the IPI growth last November was in line with increase in trade and suggested upside risks to its forecast of a 4.1% growth in Malaysia’s gross domestic product (GDP) for 2016.
“We estimate the fourth quarter GDP growth is tracking at about 4.3% y-o-y, similar to the third quarter and above our baseline forecast of 4%,” the international brokerage said in its report.
“We also note that domestic-oriented manufacturing IPI growth, as estimated by Bank Negara, has been a drag on overall IPI growth in recent months, underperforming export-oriented manufacturing IPI,” it added.
Similarly, RHB Research Institute noted that the pick-up in IPI last November was on account of exports growth.
“The pick-up was broad-based for all the major industrial components. This suggests that economic growth will likely be sustained around the 4% y-o-y level in the fourth quarter of 2016, albeit slower than 4.3% y-o-y in the preceding quarter,” the brokerage said.
In a statement, the Statistics Department said the IPI expansion last November was broad-based, supported by higher growth in all three indices, namely electricity (9.7%), manufacturing (6.5%) and mining (4.7%).
Higher output in the electricity sector reflected increase in economic activities, while output growth in the mining sector was supported by an increase in the natural gas index by 13.2%, which offset the decline in crude oil index by 1.9% during the period.
Output growth in the manufacturing sector, on the other hand, was supported by increase in electrical and electronic products (8.9%); petroleum, chemical, rubber and plastic products (6.1%); and food, beverages and tobacco (10.4%).
In a separate statement, the Statistics Department revealed that the sales value of the manufacturing sector last November had risen 8.2% to RM60.1bil from RM55.5bil a year ago, while the total number of employees engaged in the sector increased 0.2%, or 1,954 persons, to 1.031 million persons.
It added that productivity in the sector expanded 8% to RM58,301, while salaries and wages paid last November increased 6.1% to RM3.23bil.
Meanwhile, Nomura Research remains cautious over the sustainability of accelerating IPI growth. It maintained its projection of a slower GDP growth for Malaysia at 3.7% in 2017 – below the official 4% to 5% forecast.
“We believe manufactured exports to the United States are vulnerable to the risk of inward-looking US trade policies under the incoming (Donald) Trump administration. Malaysia has also agreed to cut crude oil production by 20,000 barrels per day (which we estimate amounts to about 3% of daily production) under its agreement with the Organisation of the Petroleum Exporting Countries for six months starting January,” Nomura Research said.
RHB Research Institute, on the other hand, expects Malaysia’s 2017 GDP to grow at a relatively stable pace of 4%, compared with the 4.1% estimated for 2016.

It said this was based on a sustained increase in domestic demand on the back of a resilient consumer spending, modest increase in public spending and private investment, and modest rise in exports.