KUALA LUMPUR: The Industrial Production Index (IPI) for January 2010 beats analyst expectations, rising 12.7% from a year earlier and a 2.9% improvement month-on-month, while the December 2009 IPI figures were revised to 7.5% year-on-year.

Analysts attributed the higher IPI figures in part to the low base in 2009, and while the upward trend would continue for a few more months, growth would begin to normalise in the second half of the year.

According to the Statistics Department, the IPI increase in January was due to the rise in all indices, including manufacturing (16.4%), mining (4.1%) and electricity (19.8%).

The manufacturing sector saw increased numbers from the electrical and electronic products sector (39.1%), wood products, furniture, paper products and printing (38.8%) and non-metallic mineral products, basic metal and fabricated metal products (24.6%). January manufacturing output figures rose 1.9% from December 2009, which also saw revised output figures to 10.7% on-year.

Output for the mining sector rose 5.1% on-month and 4.1% on-year. Electricity output meanwhile rose 19.8% on-year in January 2010 and 2.1% from the preceding month.

"Going forward, a key question is whether the double-digit growth is sustainable. I think in 2H10, it would dip to a single-digit growth while growth in the manufacturing sector will decelerate," said Kenanga Investment Research economist Wan Suhaimi Saidi, who said his expectation had been a 12% growth for January IPI figures.

"The world economy isn't showing a convincing recovery momentum, and Malaysia is dependent on external factors as exports are 100% of nominal gross domestic product (GDP)," he said.

He added that effects from stimulus packages were beginning to fizzle off as governments tightened their purse strings, which would in turn exacerbate the problem of an unsettled global financial market.

"It is also uncertain whether the private sector can hold up growth," he said. "The recovery story is still unconvincing."

Despite this, Wan Suhaimi said there was "no doubt" that Malaysia's growth would be positive this year, albeit not at its full potential, which would be 6% if "efficient enough to capitalise on resources".

"Our forecast is for a 4.3% GDP growth for 2010, which is below potential given weak fundamentals and external factors; also, until structural issues such as education are addressed, it will be difficult to achieve full potential," he said.

CIMB Investment Bank Bhd chief economist Lee Heng Guie expects GDP growth in the first quarter of the year to be strong — at around 7% — led by government spending, before moderating in the second half to close at 4.8% for the full year.

"The latest IPI numbers strongly suggest the economy should continue to expand at a rapid pace, at least for 1H10," he said, adding the January figures were above CIMB Investment's expectations of 11.8%.

"Output in the mining sector exceeded our expectations of 1% to 2%, whereas manufacturing output was below our target of 17.7%," he said. "We expect to see slower pace of IPI in February due to seasonal factors and shorter working days due to the Chinese New Year holidays. Hence, IPI figures for 1Q10 would be uneven."

Meanwhile, a research note from RHB Research Institute said the strengthening in industrial and manufacturing activities pointed to stronger economic activities in 1Q10.

"Based on preliminary numbers, we estimate that real GDP growth will likely strengthen to 5.1% year-on-year in 1Q10, after returning to a growth of 4.5% in 4Q09," it said. "As a whole, real GDP is projected to rebound to 4.5% in 2010 from -1.7% in 2009.

"Going forward, we expect the country's real exports to bounce back and expand by 6.5% in 2010 from -10.1% in 2009. This is in line with the recovery in the global economy, which is gaining momentum, though the pace is likely to be slow and uneven."

The research house said the improvement in the global economic outlook would likely boost consumer and business confidence in the country.

In a separate statement from the Statistics Department, sales value of the manufacturing sector in January 2010 posted a 28.8% growth y-o-y to RM43.3 billion from RM33.6 billion a year earlier. It rose 0.3% from the preceding month, while sales value in December 2009 were revised to 15.9% y-o-y to RM43.2 billion.

Five major industries which saw significant sales value increases y-o-y were the manufacture of television and radio receivers, sound or video recording or reproducing apparatus, and associated goods (107.9%), manufacture of semiconductor devices (48.8%), manufacture of other basic industrial chemicals except fertilisers and nitrogen compounds (72.3%), manufacture of basic iron and steel products (80.3%) and manufacture of electronic valves and tubes and printed circuit boards (38.1%).

Total employees engaged in the manufacturing sector in January 2010 were 949,872, which represented a 3.8% decline from a year earlier. Salaries and wages paid during the month were 12.5% higher from 2009 to RM2.145 billion, while productivity or average sales value per employee was up 33.8% y-o-y to RM45,612.