Production for the month of June gained 3.7% YoY after a
revised 7.8% in May, disappointing market expectations for a 4.8% increase.
This is a result of moderating growth in manufacturing production and a fall in
mining. Compared to the previous month, production fell by 1.4% whilst the
3-month month moving average (a method used to
remove seasonal factors) increased by 4.9%. For the 2Q12, the IPI
expanded by 4.9% from 3.2% in the 1Q12. Average growth for the first half of the year expanded by 4.0%, a
huge improvement from the 0.3% increase from
the same period in 2011.
The pace of the manufacturing sector’s growth production
slowed to 4.8% YoY from 6.7% previously. There was no production growth in comparison
to the previous month. Looking into detail, it is found that this is due to the
slight moderation in the production of E&E manufacturing, which only gained
1.5% YoY from 5.3% in the previous month. This moves in tandem with the exports
of E&E. However, the manufacturing of petroleum, chemical, rubber &
plastic products still registers a strong growth of 8.2%. The production of
non-metallic mineral products, basis metal & fabricated metal increased by
5.0% from 3.3% in May whilst the transport equipment and other manufactures
gained 13.8%. This is a good indication of the strength in infrastructure spending
– of which we believe in on target with projects under the ETP.
The mining sector has once again breached into the negative
territory, falling by 0.3% YoY in June and falling by 5.3% compared to the previous
month. This is the result of a fall in the natural gas index, which contracted
by 9.6% in June. The crude oil index on the other hand grew by 5.2%. Despite
the fall in the natural gas index, we believe that it will pick up as demand
from Japan remains strong as share of alternative fuels to nuclear energy has
been on the record high since the Fukushima incident over a year ago and will
remain so in the coming months. For 2Q12, the mining index expanded by 2.2%
compared to the 1.1% fall in 1Q12.
While the output growth in manufacturing slowed and mining production
fell, the electricity output grew 5.9%
YoY from 6.6% previously.
Despite the fact that manufacturing for the month of June is
below expectations, the average 2Q12 manufacturing grew at 5.7%, higher than
the previous quarter’s 4.7%. Given that
the manufacturing sector’s contribution to GDP is relatively large (about 25%),
it could help push the 2Q12 GDP nearer the 5% level or above the 4.7% registered
in 1Q12. Nonetheless, we are more cautious about the economic situation in the
2H12, due to the less than favourable condition of the global economy
especially in the Euro area. Europe’s manufacturing and service provider
sectors PMI came in at 46.5 in July (anything below the 50 point mark points at
a contraction), making it at its 11th consecutive month of contraction; whilst
across the Atlantic factory orders for US factories faced a 0.5% decline. The economy
in the USA and Europe is not rebounding as we had hoped and this leaves the
likelihood of a downward revision of our full-year forecast. Nothing will be
determined until the GDP is announced in the coming week. Until then, we retain
our 2012 forecast at 5.0%. For now, we can only wait and see as the 2H12 begins
to unravel itself.
Source: Kenanga
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