Manufacturing may moderate in near term

> Strong factory output in August was driven by growth in petroleum, rubber, electrical, F&B and tobacco segments

PETALING JAYA: The manufacturing sector could see a moderation in the near term despite favourable numbers seen in the August’s Industrial Production Index (IPI), which saw a year-on-year increase of 6.8% thanks to strong growth recorded in the manufacturing sector.

The growth recorded in August surpassed market expectations of a 5.8% rise.

The manufacturing sector’s output was driven by strong growth in major subsectors namely petroleum, chemical, rubber and plastic products (6.9%), electrical and electronics products (8.6%) and food, beverages and tobacco products (9.4%).

AmBank Research cautioned that manufacturing output might grow moderately in 2017 despite better manufacturing output figure in August.

“The PMI (Purchasing Managers’ Index) numbers have not firmly surpassed the expansionary region – only twice i.e. in April and August – which we believe is due to lack of strong new businesses and export orders owing to weak demand. This explains the less optimistic outlook painted by the manufacturing sector for the first three quarters of 2017.”

However, the research house expects the moderate performance from manufacturing output to continue to benefit from the cyclical recovery coming from the export-led activities and the undervalued ringgit based on a basket of currencies.

“This will be in tandem with the strong export and manufacturing numbers. Domestic activities will continue to complement.”

Meanwhile, HLIB Research said the near-term outlook for manufacturing IPI remains favourable with continued expansion in forward indicators such as PMI, world chip sales and business confidence. This will be further supported by the diminished downside risks which have become more synchronised across key economies.

The research house also noted that the mining sector, which expanded 5.3% in August propelled by the increase in natural gas index, will moderate in the fourth quarter as the base effects stemming from commissioning of new facilities (LNG Train 9 and Petronas’ FLNG Satu) wanes.

Crude oil output on the other hand is expected to remain volatile in the nearterm following Petronas commitment to reduce 20,000 barrels per day in line with the action to curtail output by Opec and non-Opec.