The upbeat IPI data in November indicates the possibility of a relatively firm 4Q17 GDP growth, analysts say. — Reuters photo
KUCHING: The upbeat industrial production index (IPI) data in November indicates the possibility of a relatively firm fourth quarter of 2017 (4Q17) gross domestic product (GDP) growth, analysts say.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the IPI registered a convincing growth of five per cent year on year (y-o-y) in November following two months of moderating growth.
Moving into December, Kenanga Research remained slightly conservative and expect a somewhat flattish growth for the month, in consideration of the December purchasing managers index (PMI) which pointed to mostly stagnating manufacturing conditions.
Nonetheless, the research arm was overall cautiously optimistic on the manufacturing outlook, supported by sustained demand for electrical and electronics (E&E) amid a synchronised global trade recovery.
“Furthermore, the improving domestic demand alongside upward momentum in external demand would support the prospect of a stronger manufacturing sector going forward,” it said.
“With the upbeat IPI data in November, we might see a relatively firm 4Q17 GDP growth, capping the full year GDP growth to an estimated 5.8 per cent.”
The research arm of Hong Leong Investment Bank Bhd (HLIB Research) highlighted that while the improvement in November IPI growth emanated mainly from manufacturing activities, the overall economic growth is more entrenched as can be seen from strong 1Q to 3Q 2017 GDP figures which averaged at 5.9 per cent y-o-y.
Hence, HLIB Research maintained its expectation for Bank Negara Malaysia (BNM) to normalise the policy rate by 25 basis points (bps) as early as January 2018.
Kenanga Research also reiterated its view that a relatively strong economic growth trend supports the case for a monetary tightening this year.
“The higher than expected IPI growth in November reinforces the view that the economic growth trajectory could remain well above its potential or more than five per cent in 4Q17, bolstering the case for BNM to raise the overnight policy rate (OPR) by 25bps as early as 1Q18,” the research arm said.
“A second rate hike should not be ruled out contingent on a sustained growth momentum in the domestic economy.”
Meanwhile, the research arm of Public Investment Bank Bhd (PublicInvest Research) noted that the main driver of Malaysia’s IPI, the manufacturing sector, may benefit from the bright outlook of manufactured goods demand.
“This is supported by US, Eurozone and China’s strong manufacturing PMI trend which hit the year’s peak in December,” PublicInvest Research said.
With no obvious risks to growth, the research arm believed years of economic transformation, adjustment and recalibration in these countries will finally pay off.
“This could be the green shoots for Malaysia’s economy in return.”
PublicInvest Research thus retained its 5.2 per cent GDP projection for 2018.