Industrial production to register 20.3% in December 2010

A softer production growth from the electronics segment could be the key factor for the moderation.

DBS said that the industrial production is lower than the 39.8% registered in the previous month.

Apart from seasonal effect where producers typically front-load their Christmas season output to October, global electronics inventory restocking is also coming to an end. This is evident in the recent SEMI book-to-bill ratio as well as the global semiconductor sales numbers, which both are moderating from the peak in early 2010. Concomitantly, the PMI numbers are also showing some signs of weakening in manufacturing growth. The broad manufacturing PMI index though continues to show that the sector remains in expansion mode, the pace of growth is moderating.

Moreover, the PMI sub-indices show that new orders and production are declining while inventory and stock levels are building up, suggesting that the manufacturing sector could be in for a soft patch ahead. Couple that with the Chinese New Year effect in the next two months, in which plants in China will typically go into a lull period during the festive season, the headline production index will surely experience significant volatility.