Industrial production surge supports GDP revision, say analysts
6.8pc expansion in August’s industrial production, the highest in 29 months, supports an upward revision
THE 6.8 per cent expansion in August beats market expectations and supports an upward revision of Malaysia’s 2017 GDP growth forecast.
MALAYSIA’S economic growth forecast this year may warrant an upward revision following the 29-month high improvement in industrial production index (IPI) for August, say analysts.
The IPI growth sped up further to clock a 6.8 per cent expansion in August, from July’s strong pace of six per cent.
The IPI recorded 6.9 per cent growth in March 2015.
The August data was well over market consensus, which had anticipated growth of 5.8 per cent. Analysts expect the encouraging IPI trend to continue.
RHB Research Institute expects Malaysia’s real gross domestic product (GDP) to grow 5.3 per cent this year, before inching up to 5.4 per cent next year.
Last year, the GDP growth was 4.2 per cent.
The forecasts were on the back of the robust pace of industrial activities, it added.
The government had officially forecast four to five per cent GDP growth this year, but an upward revision is widely expected at the 2018 Budget tabling on October 27.
Kenanga Research said August’s strong IPI showing came hot on the heels of July’s rebound story after the June IPI posted a lull with a mere four per cent growth.
“As such, we see some upside potential for our prevailing third quarter GDP forecast of 5.3 per cent with the manufacturing sector likewise expected to expand 5.3 per cent,” it added.
Kenanga Research estimated that a 0.2 percentage point (ppt) increment in the manufacturing sector growth would boost the third quarter GDP growth by 0.1 ppt.
“At present, our real manufacturing growth estimate stands at 5.3 per cent, significantly contributing to our GDP growth estimate of 5.3 per cent for the third quarter of this year.”
MIDF Research, meanwhile, said continuous upbeat momentum in global demand remained a key driver in boosting up Malaysia’s industrial activities.
“Due to strong export performances for the past eight months and increased business confidence, we believe the upbeat momentum will remain and cause positive spillover effects to Malaysia’s industrial production this year,” it said.
The mining sector, which comprises natural gas and crude petroleum production, surprised the market by growing 5.4 per cent year-on-year, the fastest ever this year. This was mainly driven by gas production growth of 14.6 per cent year-on-year.
Manufacturing sales rose by 16.5 per cent year-on-year, recording nine consecutive months of double-digit expansion despite a slight slowdown from July.
MIDF Research expects industrial production growth to hit 5.3 per cent this year based on solid uptrend in trade activities and steady domestic consumption.
Malaysia’s robust external trade performance, a modest increase in commodity prices as well as solid the electric and electronic industry led to strong economic expansion in the first half of the year.
This has prompted the World Bank to revise its GDP growth forecast on Malaysia twice this year.
Early this month, the World Bank revised up the forecast to 5.2 per cent from 4.9 per cent in June, on the back of much stronger-than-expected growth of 5.7 per cent in the first half.
It had previously forecast Malaysia’s economy to grow 4.3 per cent.