Disappointing industrial production figures loom

Analysts project overall industrial production output to have shrunk by 10.7%, based on the significant decrease in non-oil domestic export growth.

The NODX growth was earlier reported to have dropped by 16.8% MoM versus consensus forecast of -4.3% MoM sa, though analysts from DBS say that trade and industrial production figures typically experience the seasonal effect of the Lunar New Year in the first three months.

Meanwhile, exports of pharmaceutical products registered a healthy 43% YoY rise and the electronics segment is making a strong turnaround.

Here's more from the DBS Group Research:

More bad news awaits the market with industrial production index for March likely to disappoint. Overall industrial production output is expected to have shrunk by 10.7% YoY, judging from the sharp drop in non-oil domestic export growth reported. Headline NODX growth came in significantly worse than expected. It plunged by 16.8% MoM sa, at -4.2% YoY, versus consensus forecast of -4.3% MoM sa, at 7.1% YoY. This is the sharpest monthly drop on record.

Nonetheless, it should be noted that trade and industrial production figures are typically “goofy” in the first three months of the year due to seasonal effect of the Lunar New Year. Plus, key pharmaceutical segment is reaching a cyclical peak in production output. Although exports of pharmaceutical products registered a healthy 43% YoY rise, it contracted by 9.2% MoM nsa. This confirms the belief that a cyclical pullback in pharmaceutical production is on the cards and production index should likewise reflect that.

However, it is also undeniably true that key electronics segment is making a strong turnaround and leading indicators are certainly pointing to better growth prospects ahead for this industry. But risks remain on the external front. No closure is in sight on the Eurozone crisis whereas the US recovery has been weaker than what the headline numbers have suggested earlier in the year. Global uncertainties will continue to fuel the external headwinds facing the manufacturing sector.

A more pronounced and sustainable improvement may only materialise in the second half of the year. Expect key macroeconomic numbers to move sideways in the coming 2-3 months. In addition, a poor outcome in the industrial production figure will surely bring about a downward revision to the headline GDP growth figure for 1Q12. For now, the official advance estimate is that the economy probably grew by 9.9% QoQ saar at 1.6% YoY in the first quarter. A forecast of 8.5% QoQ saar and 1.1% YoY was penciled in previously.