Tuesday, October 11, 2011

August 2011 Industrial Production: Did Najib Know Something We Didn’t?

Today’s industrial production numbers, unlike external trade, shows the economy picked up in August (log annual and monthly changes; seasonally adjusted; 2000=100):



Apart from electricity consumption, the other two major components both turned up. As a result, output growth posted the strongest growth since before the Japan earthquake. What makes this really unusual is both the month of August and the Ramadhan break, which coincided this year, typically see production drops. The big impetus came from output of refined petroleum products which zoomed 30.4% from July to August. That suggests this uptick in output might not last, if global demand slows.

We’re certainly not going to get any growth support from the electronics and electricals sector (index numbers; seasonally adjusted; 2000=100):


Output in this sector has been stagnant at around 2003-2004 levels since the recovery, with not much in the way of prospects.

However, what’s interesting here is that with these IPI numbers we’re right on track for reaching at least the bottom of the government’s forecast for this year of 5.0%-5.5%:


Based on the Jul-Aug IPI numbers, real GDP for the quarter should be just a hair under RM150 billion, which would give year on year growth of 5.5% – right on the average needed for the second half of the year to enable the economy to achieve 5.0% rGDP growth. Seasonally adjusted quarterly GDP growth using the same forecast number shows 2.8% growth in 3Q – but that puts the trough of the growth slowdown squarely in the immediate period after the Japan earthquake, and implies the economy bouncing back in the last few months.

Even as many have panned the government’s 2012 GDP forecast as being overly optimistic, I now find myself unable to rule it out entirely. In fact an AR(1) trend forecast (which actually performs pretty decently) gives even better numbers: 5.4% for 2011, and 7.3% for 2012.

Technical Notes:

August 2011 Industrial Production Report from the Department of Statistics

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