- Growth of Malaysia’s industrial production surprisingly
sped up in May supported by robust levels of expansion in manufacturing as well
as a low base factor. Despite the improvements, recent global and regional
developments suggest that external demand weaknesses will continue to be the
biggest downside risk to growth this year.
- As apparent from the data released yesterday, Malaysia’s
industrial production growth nexpectedly improved in May 2012, registering an
expansion of 7.6% YoY (April: +3.2%).
- This was a surprise to the market, as it came in very much
higher than the consensus estimate of +4.7% YoY (Source: Bloomberg Poll), as
well as our view of 4% YoY.
- The expansion in IPI was due to the rise in all sectors,
particularly in manufacturing (63.5% of IPI) as growth in the sector improved
to +6.5% YoY, compared with 5.7% YoY recorded in the previous month.
- Meanwhile, both the electricity and mining sectors also
recorded accelerated growth at +6.6% YoY (April: +3.4%) and 11.5% YoY,
respectively, (April: -3.6%).
- Industrial production remained relatively resilient on the
back of a weaker base factor in May.
This was due to the slowdown in manufacturing activities in the same month last
year as supply disruptions occurred as a result of the devastating Japanese
earthquake.
- With manufacturing having the highest weightage (64% of
IPI), the increase seen in the IPI numbers was largely attributed to a better
growth rate of 10.5%YoY (April: +10.2%YoY) recorded in petroleum, chemical,
rubber and plastic products, the largest components of manufacturing (23% of
IPI).
- Reflecting the stronger demand from major industrial
economies, compared to the previous month, output in the manufacturing sector
expanded by 3.5% (April: -5.2%MoM).
- Growth in E&E output, the second largest contributor
to the IPI, improved in May with a growth rate of 6.7% YoY versus an expansion
of 1.8% in April. On a month-on-month basis, output in this sector grew by
9.0%, compared to a contraction of 5.9% MoM in April.
- Moving ahead, however, external demand will likely remain
weak as the global economy faces major challenges in ensuring robust growth in
the coming months. This is evident from the significant declines seen in
manufacturing activities across the globe in
June.
- In this regard, global manufacturing activity contracted
in June at the fastest pace in three years as PMI fell to 48.9 from 50.6 in May
due to the decline seen in the Eurozone as well as the US and China.
- In the meantime, while heightened uncertainties in the
global economy may continue to cloud external demand prospects in the quarters
ahead, our domestic economy will likely be buffered by strong domestic demand.
Furthermore, we believe there is still plenty of room for additional fiscal and
monetary tools in the event of a sharper-than-expected deterioration in
external demand.
- In this regard, although 2Q numbers would likely
disappoint, better numbers would be seen in the second half of the year due to
the continued expansion of domestic demand as well as some level of stability
in the global economy. In addition, the moderating inflationary pressures would
also be positive for the domestic economy.
- Thus, while we are looking at potentially trimming our 5%
GDP growth figure to around 4.5%, the underlying trend remains on track for a
rate within BNM’s estimate of 4%-5% for this year in view of the expected
rebound in 2H12.
Source: AmeSecurities
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