June industrial output likely to show slower pace of decline

IMPROVED exports of electrical and electronics (E&E) products have most likely boosted industrial production numbers in June and will also do so for the coming months of 2009, said economists.

The Business Times market poll indicated a slower pace in decline for the index, which measures the pace of manufacturing, mining and electricity indices, for the month, averaging 9.30 per cent year-on-year.

The Statistics Department will release the data today. TA Research pointed out that the 48.7 per cent growth month-on-month for E&E exports suggest that the manufacturing and electricity components of the index had improved over the month reviewed.

"Following the relatively low index value seen during the same month a year ago, the electricity component of IPI in June may break the streak of yearly contractions since October last year," said its economist Patricia Oh.DBS Bank is also looking at the output index treading upwards for the month of June.

Economist Irvin Seah said improvement in the global economic outlook has translated into higher export orders, which was clearly evident in the headline export figure announced last week. "Export growth in June came in at -22.6 per cent, and reinforcing our long held view that the worst of this down cycle for Malaysia has passed and the economy is now embarking on the path to recovery.

"As such, output growth in June should likewise follow the footpath of exports," Seah said.He is looking at overall production to revert to positive growth level as early as October to November this year."Indeed, the manufacturing sector should see continued improvement in growth and the external-oriented services industries such as transport services should likewise benefit from that.

"On the other hand, domestic dependent sectors (i.e. retail sector) may take a while more to recover as a result of the weaker employment outlook," he said. US investment bank Citi's head of Asia Pacific economics and market analysis Kit Wei Zheng said mining could see further moderation in the rate of decline in June on the back of rising crude oil prices.

Electricity production could also continue to moderate as the broader economy recovers.He said while the improvement in the decline for exports for E&E suggest that the manufacturing recovery is beginning to gain pace, the lag in the recovery vis-a-vis the region and labour shortages due to government restrictions to hiring foreign workers, manufacturing could remain as a drag on the IPI in the near term.

Standard Chartered Bank's Alvin Liew remained bearish on his IPI outlook for June, with his concern being continued weakness in external manufacturing demand.