Malaysia's June IPI growth expected to be slower

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PETALING JAYA: Malaysia’s factory output, as measured by the Industrial Production Index (IPI), is expected to remain robust in June, although growth will likely be slower than the preceding month due to the softer pace of exports growth.

According to the median forecast in a Bloomberg survey of 19 economists, the June IPI growth will be at 3% year-on-year (y-o-y) compared with the 4.6% y-o-y growth in May.

In general, economists expect expansion in the country’s June IPI - a gauge of output changes in manufacturing, mining and electricity – to be supported by exports growth, specifically the overseas demand for electronics products.

The Statistics Department will be releasing the June IPI data on Thursday. 

The data will give an indication of the strength of the country’s gross domestic product (GDP) for the second quarter of 2017. Bank Negara will be announcing the second-quarter GDP data on Aug 18.

According to Moody’s Analytics, electronics production will continue to drive Malaysia’s June factory output, which it expects to remain robust with a growth of 4.4% y-o-y – higher than the median forecast.

“Production is mainly being buoyed by electronics due to strong global tech demand ahead of product launches later in 2017,” the financial services company said. 

“Solid tech demand is helping absorb softness in mining production, especially from crude oil from sluggish prices,” it wrote in its latest Asia-Pacific Economic Preview note. 

Moody’s Analytics pointed out that Malaysia has a heavy exposure to the global tech cycle with integrated circuits representing about 20% of Malaysian exports.

Statistics Department data last week showed Malaysia’s exports in June grew 10% y-o-y, boosted by electrical and electronic (E&E) products. The increase came in below economists’ expectations of an 18.3% y-o-y growth.

In May, Malaysia’s exports grew 32.5% y-o-y, up from 20.6% y-o-y in April.

Reflecting the growth in exports, the country’s IPI in May expanded 4.6% y-o-y, faster than the 4.2% growth in the preceding month. The May IPI growth was largely supported by rising manufacturing activity and electricity generation. The gains, however, were offset partially by contraction in the mining sector on lower crude oil production.

For January-May 2017, the IPI grew 9.1% y-o-y, compared with 6.8% between January-May 2016.

In an earlier note on Malaysia’s IPI, AffinHwang Capital said it expected growth in June to remain strong, supported by strong exports. This would reflect the steady overseas demand for electrical and electronic products.

The investment bank projected June IPI to expand 3.5% y-o-y.

“With strong growth in the first five months, in a recent report by World Semiconductor Trade Statistics, the organisation upgraded its forecast for the industry’s worldwide sales for 2017 to US$378bil, an 11.5% increase from the 2016 sales total, the highest annual growth since 2010,” AffinHwang Capital said. 

It added that the latest OECD Composite Leading Indicators, a forward-looking measure of economic activity, remained stable at 100 in May, and was unchanged at the current level since January this year, signalling a stable pace of expansion in the OECD area.

“This was also consistent with the monthly global composite manufacturing and services PMI (purchasing managers’ index), which remained at 53.7 in June (53.8 in May), indicating that manufacturers are still positive on new orders, supported by the steady recovery in global economic output,” AffinHwang Capital explained.