Stronger manufacturing activity across major clusters support GDP outlook
KUCHING: Growth in Malaysia’s industrial production index (IPI) rose further, from 3.1 per cent year on year (y-o-y) in March to 4.6 per cent in April, slightly higher than market expectations of 4.4 per cent.
Growth in all subcomponents, namely manufacturing, mining and the electricity sectors, trended higher in April, partly due to a lower base in the corresponding period of last year.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that growth in April’s IPI was higher than the average of 3.9 per cent in 1Q18, supported by the manufacturing sector, which also signaled a decent start for manufacturing Gross Domestic Product (GDP) growth in 2Q18.
However, this was partly due to a low base effect in April 2017, as growth in IPI may normalise and slow in the months ahead.
This was also consistent with recent data released by the Semiconductor Industrial Association (SIA), where the global semiconductor sales continued to improve further, increasing by 20.2 per cent y-o-y in April as compared to 20.1 per cent in March.
“Due to the strong growth in the first four months of 2018, the SIA has also revised its forecast for 2018 higher, from seven to 12.6 per cent, in view of the strong demand for memory and analog products,” it said.
“However, the downside risk remains on the trade war tension between the US and other major economies, including China, the EU, the US, Mexico as well as Canada.
“Nevertheless, recent global economic indicators showed signs of steadygrowthinOECDcountries, where the global Purchasing Manager Index (PMI) remained above the 50- mark, indicating that global manufacturers are cautiously optimistic on the improvement in new orders and international trade.
“Looking at Malaysia’s growth in exports and IPI for April, which expanded by a better-thanexpected growth rate, we believe the weak trend seen in Malaysia’s manufacturing PMI will prove to be likely temporary.”
The country’s manufacturing PMI fell further from 48.6 in April to 47.6 in May, for the fourth consecutive month, and has been below the 50 level since January 2018 (averaging around 48.9 from February to May 2018).
This led AffinHwang Capital to estimate Malaysia’s real GDP growth to likely grow by 5.55 per cent y-o-y in 2Q18.
“For 2018, we are projecting Malaysia’s economy to expand by 5.3 per cent y-o-y, as compared to 5.9 per cent in 2017. This is due to the higher base effect in 2017, but we believe the growth will continue to be supported by strong domestic demand, with some moderation in export performance.”
The research firm at Kenanga Investment Bank Bhd (Kenanga Researh) saw that higher preelection public spending and low fuel prices could have given a slight boost to the economy in the 2Q18.