AmWatch - EconWatch : IPI slows on contraction in mining sector, 13 Oct 2015

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EconWatch : IPI slows on contraction in mining sector

               

Malaysia’s industrial production index (IPI) grew at a slower pace of 3.0% YoY in August (July: +6.1%), owing to the decline in the mining sector by 3.4%. Mining output fell for the first time since July 2014. The decline was contributed by the fall in Natural Gas index (-11.8%). Also, the Crude Oil index slowed further to +4.4% vs. a high of +21.8% in March 2015. Manufacturing output continued to register a healthy growth of 4.3%. The major sub-sectors of manufacturing which increased in August 2015 include E&E (+11.7%); Food, Beverages and Tobacco (4.7%) and Non-metallic Mineral Products, Basic Metal and Fabricated Metal Products (3.7%). Also, manufacturing sales reverted to +0.8% totalling RM56.2bil (from -1.3% in July), on the back of higher sales of E&E products including consumer electronics and computers.

Malaysia’s manufacturing segment remained weak due to lacklustre operating conditions as at end-3Q15. Purchasing Managers’ Index (PMI) contracted for the sixth straight month in September to register at 48.3 points. Mainly, production, new orders, purchasing activity and stocks of pre-production goods contracted at slower rates compared to August. That said, employment in the manufacturing sector increased for the first time since April, albeit at a marginal rate. Growth in the global manufacturing sector was lacklustre in 3Q15. JP Morgan Global Manufacturing PMI stood at 50.6 points in September, broadly unchanged from 50.7 in August. The headline index has been hovering below the long-run trend in recent months. Global manufacturing production rose at the slowest pace in more than two years in September, while growth of new orders remained low. The Asian region remained weak in September as contraction in China persisted for the second consecutive month. The slower industrial production in August was attributable to the contraction in the mining segment. Weak global crude oil prices and decline in exports of petroleum will adversely impact the IPI growth in 2015 as the mining segment accounts for 28.9% of IPI. On the flipside, manufacturing output remains supportive of IPI growth in 3Q15. Manufacturing output is also good proxy for quarterly GDP.

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