Industrial production (IP) expanded for the second month in a row in May 2013, albeit at a slower pace of +2.1% YoY (revised Apr 2013: +5.0% YoY; Consensus: +0.1% YoY). Positive growth momentum was sustained by further rise in electronics production, but tempered by the moderation in biomedical output growth. MoM, overall output was down for a second month as it contracted by -0.4% (Apr 2013: -1.1%) while the seasonally adjusted figure rose by +1.3% (Apr 2013: +3.6%). For the first five months of 2013, production was down by -2.7% YoY compared to the +0.1% YoY reported over the corresponding period last year.

Electronics output up for the second month by +4.2% YoY (Apr 2013: +1.5% YoY) compared to the two years of negative streak prior to the rebound in Apr 2013. The gain was underpinned by the robust growth in the production of Other Electronics Modules & Components (May 2013: +55.6% YoY; Apr 2013: +81.1% YoY) which benefitted from high regional demand, and bolstered by the sustained increases in Semiconductor (May 2013: +11.8% YoY; Apr 2013: +7.5% YoY) and Computer Peripherals (May 2013: +12.5% YoY; Apr 2013: +1.1% YoY).

Biomedical production growth lost a bit of momentum in May 2013 after April 2013’s jump (May 2013: +22.8% YoY; Apr 2013: +41.9% YoY) on moderation in the growth of Pharmaceuticals (May 2013: +25.1% YoY; Apr 2013: +46.4% YoY) and Medical Technology (May 2013: +10.7% YoY; Apr 2013: +23.4% YoY). Excluding biomedical production, IP dropped by -2.4% YoY (Apr 2013: -1.8% YoY).

Transports engineering was the worst performer of the month as production fell by -13.2% YoY (Apr 2013: -6.8% YoY) on the back of lower output of Aerospace (May 2013: -21.0% YoY; Apr 2013: -0.7% YoY) as a result of lower demand for repairs and maintenance jobs from the US and Europe, while Marine & Offshore Engineering (May 2013: -11.9% YoY; Apr 2013: -9.1% YoY) declined on weaker rig and shipbuilding activities.

IP expansion of 3.6% YoY in Apr–May 2013 augurs well for 2Q 2013 GDP after the economy eked out a +0.2% YoY growth in 1Q 2013 amid the -6.9% contraction in IP during the quarter. Short term outlook for IP remains positive as the purchasing managers index (PMI) for new orders (May 2013: 53.1; Apr 2013: 51.5) and new export orders (May 2013: 52.9; Apr 2013: 50.6) maintain above-50 readings. These reflect sustained US recovery despite the fiscal drag, Abenomics-driven growth in Japan, signs of Eurozone recession tapering and gradual pick up in electronics demand, although we are mindful of the downside risks posed by pre-mature QE ending by the US Fed and weaker-thanexpected China growth. We maintained our +2.3% real GDP growth forecast for 2013 (2012: +1.3%).

Source: Maybank Kim Eng Research - 27 Jun 2013