INDUSTRIAL activity in the country surged in May at its fastest pace since the fourth quarter of 2000 as two of the three sectors of the Industrial Production Index (IPI) recorded strong double-digit percentage gains.
Analysts said the surprising spike in industrial activity, which was double market expectations, should not only lead to an upgrade of the outlook for economic growth in the second quarter but also provide some support to the robust liquidity-driven rise in the stock market.
The IPI for May rose by 16.2% from a year ago with all three sectors of the index posting growth, said the Statistics Department in a statement yesterday.
Manufacturing activity improved by nearly 16% and the electricity index rose by 4.8%. The biggest gain was, however, recorded by the mining index, which posted a near 27% jump from a year ago.
Compared with April, industrial production as a whole improved by 5.3%. Manufacturing activity rose by 5.9%, the electricity index increased by 3.2% and the mining index climbed 2.7%.
“The market has been taken by surprise by the strong IPI numbers. I suspect a lot of people will have to look at upgrading their second quarter gross domestic product (GDP) growth estimates,'' said Mayban Securities head of research Zulkifli Hamzah.
Industrial production numbers over the past few months have now beaten market estimates, showing unexpected signs of resilience at times when poorer performances had been forecast in view of the war in Iraq and the SARS outbreak in a number of countries.
“The economy is not only immunised against the SARS outbreak, but is certainly charging ahead like a bull,'' commented DBS Bank economist Wong Chee Seng in a note yesterday.
Driving industrial production higher was once again the manufacturing sector. Economists suspect the strength in such numbers rests with the electrical and electronics businesses continuing their strong pace after production of semiconductors and other electronic components grew by 28.6% in April.
Sales of semiconductors in the Asia Pacific were up 11.7% in May from a year ago. Globally, sales of semiconductors rose by nearly 10%.
“There could have been some stocking up in the electronics and electrical segment in anticipation of a recovery in the second half of this year,'' said SBB Securities Sdn Bhd economist Manokaran Mottain.
“The better outlook should reassure investors and attract both portfolio and FDI inflows into Malaysia.''
With industrial production, a big component of Malaysia's economy showing strength in April and May, some economists say an upside revision to downtrodden estimates for second quarter GDP growth may now be inevitable.
“The stronger IPI for April and May will provide a strong cushion for second quarter GDP growth and help offset slower growth in the services sector due to the SARS impact,'' said CIMB economist Lee Heng Guie.
Wong said economic growth momentum would be supported by the RM7.3bil economic package and clearer visibility for stronger capex-led growth. He added that the Malaysian economy could surprise many people just like South Korea in 2001.
For the first five months of the year, industrial production was 9.9% higher from a year ago. Production by the mining sector improved by 10.3% and output by the manufacturing rose by 10.2%, said the Statistics Department.
Output in the electricity sector increased by 6.8% during the same period from a year ago.