Drop in mining activities eases June IPI growth to 1.1%

PETALING JAYA: Malaysia’s industrial production index (IPI) growth in June 2018 eased to its slowest pace in four years to 1.1% year-on-year (yoy) against 3% yoy in the preceding year, due to a decline in mining activities.

The marginal growth was below market expectations of a 3.2% yoy increase.

In a statement, the Statistics Department said IPI growth was driven by positive growth in manufacturing and electricity indices. The mining index posted a drop from a year ago.

MIDF Research said the slow pace in external trade had dragged down June’s IPI performance.

“Slowdown in Malaysia’s external trade activities, particularly domestic exports derail overall IPI, factory output and manufacturing sales. Total exports grew by 7.6% yoy in June, mainly supported by expansion in re-exports by 63.1% yoy while domestic exports shrank by 0.8% yoy,” the brokerage explained.

“We lower our forecast on IPI growth from 4.3% to 3.8% for 2018. As guided by the recent Business Tendency Index data, we believe the IPI growth will be growing between 3.5% and 4.5% during the second half of 2018,” it added.

The disappointing June IPI is likely to result in the second quarter’s GDP (gross domestic product) to miss its forecast, Nomura Research said.

The research investment estimates GDP growth to track at 4.7% yoy in the second quarter, below its previous estimate of 5% and a sharper slowdown from 5.4% in the first quarter.

“Beyond the second quarter, the boost to private consumption is likely to be modest and is unlikely to offset the hit to growth from significant government spending cuts to offset the loss in GST revenue,” the research house added.

Nomura Research forecast a slowdown in full-year GDP growth to 5.1% in 2018 from 5.9% in 2017 – below Bank Negara Malaysia’s 5.5%-6.0% forecast.

Meanwhile, despite the slowdown in June’s IPI growth, RHB Research Institute said it is maintaining its 2018 GDP growth forecast at 5.2%, easing from 5.9% in 2017, on a slowdown in external trade, but cushioned by resilient domestic demand.

Separately, the Statistics Department also reported manufacturing June sales of RM67.1bil, reflecting a 7.8% growth from RM62.3bil a year ago.

The increase was due to a rise in Electrical and Electronics Products (9.2%), Petroleum, Chemical, Rubber and Plastic Products (7.3%) and Non-Metallic Mineral Products, Basic Metal & Fabricated Metal Products (6.0%).

Compared with May’s figures, manufacturing sales value rose by 2.7%. On a seasonally adjusted month-on-month basis, however, the sales value in June dropped by 0.8%. In the Jan-June period, manufacturing sales rose 6.8% to register RM396.5bil.

Employees engaged in the sector totalled 1,070,776 in June, a rise of 2.2% from a year ago; salaries and wages paid during the month increased by 10.2% year-on-year.