Malaysia: December 2017 industrial production
Originally published by CIMB Research and Economics on 9 February 2018.
December 2017 industrial production
- Malaysia’s Dec industrial expansion disappointed forecasts, slipping to 2.9% yoy, with the main surprise coming from a large contraction in mining output.
- Sectors that experienced improved manufacturing activity in Dec were palm oil and paper, while growth dimmed in export-oriented electronics and rubber gloves.
- Based on today’s data outturn from industrial, services and construction sectors in 4Q17, we expect real GDP growth to moderate to 5.7% yoy (+6.2% yoy in 3Q17).
Headline IPI growth misses expectations in Dec
The industrial production index (IPI) gained 2.9% yoy in Dec, sharply below our and market expectations (CIMB: +4.2% yoy, Bloomberg consensus: +4.6% yoy, Nov: +5.0% yoy). A drop in mining output (-4.1% yoy vs. +0.2% yoy in Nov) was the culprit, as the moderation in manufacturing activity was gentler (+5.3% yoy vs. +6.7% yoy in Nov), while growth in the electricity index was unchanged at 3.9% yoy. The seasonally-adjusted IPI resumed a streak of sequential setbacks, falling 1.3% mom in Dec (+1.9% mom in Nov).
… dragged down by contraction in O&G output
Mining output declined in Dec on lower production of petroleum (-5.0% yoy vs. +0.3% yoy in Nov) and natural gas (-3.2% yoy vs 0% in Nov), partly due to the high base from the commencement of new projects a year ago and also, month-on-month declines (-2.7% mom, seasonally adjusted). Activity in the downstream O&G sector was predictably more tempered, gaining 1.7% yoy in Dec, following a robust 9.4% yoy jump in Nov.
Manufacturing activity softens…
The manufacturing sector was supported in Dec by higher production of vegetable and animal oils (+36.3% yoy vs. +13.5% yoy in Nov), primarily due to a rebound in processed palm oil and paper products (+6.1% yoy vs. +3.2% yoy in Nov). However, output in export-oriented segments like electronics and rubber gloves mirrored the subdued trade numbers reported on 7 Feb as the annual comparison turned more challenging.
… but improving new orders portend production pick-up
Malaysia’s manufacturing PMI improved in Jan to 50.5 pts after dropping to 49.9 in Dec. Output growth was muted but manufacturers reported improvement in new orders, including those from abroad, suggesting that production may regain momentum. Buoyed by expectations of better operating conditions in the coming months, employers were carefully increasing hiring plans and boosting average selling prices to pass on higher input costs.
Services and construction activity eased slightly
Separately, the Department of Statistics also released the Index of Services for 4Q17, which showed marginally slower growth (+6.8% yoy in 4Q17 vs. +6.9% yoy in 3Q17), on the basis of weaker expansion in retail trade, finance, real estate and telecommunications. Meanwhile, the value of construction work done rose at a slower pace (+7.7% yoy in 4Q17 vs. +8.1% yoy in 3Q17), stifled by sliding growth in private residential property, as well as government and public sector construction.
Economic growth may have slowed to 5.7% yoy in 4Q17
Imputing the latest data from the industrial, services and construction sectors, we estimate that the national accounts due to be released on 14 Feb will probably show real GDP growth moderating to 5.7% yoy in 4Q17 (+6.2% yoy in 3Q17) for a full-year expansion of 5.9% in 2017. We continue to expect Malaysia’s real GDP growth to ease to 5.2% in 2018.