July IPI growth of 0.5% y-o-y the lowest this year — analysts

by **Cals** Fri 12 Sep 2014, 17:22

Business & Markets 2014

Written by Supriya Surendran of theedgemalaysia.com

Friday, 12 September 2014 10:01

KUALA LUMPUR: The monthly industrial production index (IPI) growth fell sharply to 0.5% year-on-year (y-o-y) in July compared with 7% in June, largely due to contractions in the mining and manufacturing sectors, say analysts.

The growth is also the lowest this year and one of the country’s worst performances since more than a year, said M&A Securities in a note to clients yesterday.

M&A Securities said the slow growth in IPI is in tandem with the poor export performance of the country , which tumbled to 0.6% y-o-y in July against the first half of the year’s (1H14) export average of 12.6%.

But what surprised the research house was the sharp contraction showed by the mining sector for the month that dipped to 7.8% from a growth of 1.4% in June.

“This deep red level of performance by [the] mining sector has not been seen for quite some time, [and] last seen in July 2012 where [the] mining sector recorded a contraction of 9.5%,” it said.

Meanwhile, AllianceDBS Research, opined that the mining sector contraction of 7.8% was mainly due to declines in natural gas (-15.5%) and crude oil (-0.8%), whereas the growth in the manufacturing sector was held up by outputs in electrical and electronics products and transport equipment.

The research house noted that the July growth of 0.5% was significantly below market expectation of 4.3%, which was based on the Bloomberg poll forecast.

“The marginal increase in overall output was not only the slowest since February 2013, but ... also a significant reversal of trend, compared with the year’s highest growth of 7% seen in June,” said AllianceDBS in its research note.

M&A Securities said a sharper turnaround in IPI performance could be a challenge, given the deliberate and carefully calibrated slowdown in China’s economic activity and the strength of the ringgit, which could weigh on the country’s competitiveness.

In view of July’s poor IPI and trade data, AllianceDBS expects 2H14 gross domestic product (GDP) to taper to 5.5% from 6.3% in 1H14, but maintained its full year GDP forecast at 5.8%.

This article first appeared in The Edge Financial Daily, on September 12, 2014.