Economists warn seasonal factors may impact IPI data in Q1

PETALING JAYA: Local factory output as measured by the industrial production index (IPI) for the first quarter will be distorted by seasonal factors, say economists.

They cautioned that the production ramp-up before the Chinese lunar new year holidays could see January’s IPI figures rising when compared to the lacklustre performance of December, where factory output expanded 2.9%, lower than the forecast 4.6% and down from November’s 5%.

The IPI also indicates demand for manufactured goods.

According to a Bloomberg survey of economists, the IPI, scheduled to be released tomorrow by the Statistics Department, may grow 7.7% in January compared to the same month last year.

However, Socio Economic Research Centre executive director Lee Heng Guie, who appears to be more cautious than the consensus, anticipates the IPI to rise by 3.5% to 4%.

“January’s IPI is expected to rise higher as production ramped up ahead of the shorter working days during the Chinese New Year celebration.

“The manufacturing sector will continue to underpin overall IPI, reflecting sustained growth in the export-oriented industries and some domestic sectors such as food, transport and building materials,” he said.

As for the first half of 2018, Lee projects the country’s industrial output to grow decently between 4% and 4.5%.

The country’s manufacturing sector performance has also improved in January, albeit a marginal improvement in operating conditions.

The headline Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI), a composite single-figure indicator of manufacturing performance, rose to 50.5 in January 2018 from 49.9 in December.

A reading above 50 indicates expansion, while a reading less than 50 indicates contraction.

However, PMI in February fell to 49.9, driven by a reduction in new orders on the back of weak underlying demand conditions.