December industrial output up 4.7%, higher than forecast

KUALA LUMPUR: Malaysia's industrial output rose 4.7% in December 2016, which was faster than economists' expectations of a 4% growth, boosted by growth especially in manufacturing.

According to the Statistics Department's data released on Friday the Industrial Production Index's (IPI) increase of 4.7% was however, slower than the 6.2% recorded in November. 

When compared to a year ago, December 2016's growth was at a much faster pace versus the 2.7% increase in December 2015.

“The increase in December 2016 was driven by positive growth in all indices: Manufacturing (4.3%), Mining (5.8%) and Electricity (6.1%),” it said.

The department said manufacturing sector output grew at a slower pace of 4.3% in December 2016 after the 6.5% growth of 6.5% in November 2016.

Major sub-sectors which recorded an expansion in December 2016 were: petroleum, chemical, rubber and plastic products (3.7%); electrical and electronics products (5.3%) and food, beverages and tobacco (8.8%).

As for the mining sector, output grew 5.8% in December 2016 – extending its gains from the increase of 4.7% in November 2016 – due to crude oil production. This expansion was due to the higher natural gas index (12.7%) and crude oil index (0.1%).

The department said as for the electricity sector, output increased by a slowed pace of 6.1% in December 2016 following an expansion of 9.7% in November 2016.

Commenting on the IPI, Nomural Global Economics Research said the IPI for December 2016 was below its forecast of 6.0%. 

“This was mainly due to an unfavourable base effect – official seasonally adjusted data show a 0.9% month-on-month expansion in December, similar to November,” it said. 

The research house said the IPI data was consistent with the trade data which showed export volume growth slowing as slower manufactured export volume growth offset stronger commodity export growth.

“Overall, we estimate Q4 2016 GDP growth is tracking at about 4.3% y-o-y, similar to Q3 and above our baseline forecast of 4.0%. 

“For the quarter as a whole, stronger industrial production and a smaller drag from agriculture are likely to offset slower services sector growth. This would imply full-year 2016 growth of 4.2%, exceeding our forecast of 4.1%.,” it said.

Nomural Global Economics Research said for 2017, while there are upside risks to its 3.7% GDP growth forecast and rising risks to its call that Bank Negara Malaysia (BNM) will cut its policy rate by 50 basis points to support growth, “we maintain a cautious outlook”. 

It pointed out that manufactured exports to the US, a key source of resilience in recent years, remain vulnerable to the risk of US trade protectionism. 

“Malaysia has also agreed to cut crude oil production by 20,000 bpd (which we estimate amounts to about 3% of daily production) under its agreement with Opec for six months starting January.

“We also note that domestic-oriented manufacturing IP growth, as estimated by BNM, has continued to weigh on overall industrial production growth in recent months, underperforming export-oriented manufacturing industrial production,” it said.