The Department of Statistics releases the Industrial Production Index today:
|
Sectors |
Index October 2009 |
% Changes |
% Changes |
| IPI |
106.5 |
0.7 |
5.7 |
| Mining index |
96.4 |
-2.7 |
2.3 |
| Manufacturing index |
109.9 |
1.0 |
7.0 |
| Electricity index |
123.1 |
13.4 |
7.7 |
The important column is the year-on-year one.
The Industrial Production Index (IPI) in October 2009 posted a marginal growth of 0.7% year-on-year for the first time since September 2008. Meanwhile, the IPI in September 2009 was revised negative 6.0% year-on-year. The increase in October 2009 was due to the increases in the two indices: Manufacturing (1.0%) and Electricity (13.4%). However, the index of Mining posted a decrease of 2.7%.
Month-on-month, the IPI increased 5.7%. The cumulative index for the period of January-October 2009 declined 9.7% as against the same period in 2008. [Index of Industrial Production Malaysia October 2009. Department of Statistics of Malaysia. December 10 2009]
The manufacturing sector may finally be out of the woods. This is dependent on any revision to the figure that may occur next month however.
Notwithstanding the revision, given the centrality of the manufacturing sector to Malaysian economy, this improvement is hugely important. It provides a strong pragmatic, instead of ideological, case against the need for a third stimulus package.
The electricity is particularly indicative of possible future trend. Electricity can be argued as a leading indicator because one, it is a crucial input across a great many sectors, two, there is likely a lag between electricity consumption and completion of a goods and three, because it is an lagging input with respect to goods completion, any increase in production will be preceded by increase in electricity consumption, holding all else constant. That is why I was excited as early as July this year, as far as the IPI is concerned, when year-on-year electricity consumption first grew after it fell for an extended period.
What I would like answering is this: is the cause of the improvement in the IPI due mostly to foreign demand for domestic goods or domestic demand for domestic goods?
If it is the former, then it is likely that economic recovery, at least as far as manufacturing is concerned, has been driven largely by external demand, not Malaysian stimulus spending that is aimed at increasing domestic demand. In other words, it answer the effectiveness of the two stimulus spending. Given the huge size of external demand for domestic goods compared to domestic demand for domestic good, you know where my money is.
p/s — Elanor commented and brought up a factor that I regretfully missed. Accounting for that factor, it is becomes tenuous to claim that the increase in October is due to non-seasonal factor and therefore, due to underlying trend. This is so because year-on-year fails to remove seasonal effect as it typically does.
Nevertheless, being a stubborn person that I am, there is a good reason to think that the economy is improving, especially since the IPI has been improving (okay, performing less bad rather than improving) since January this year.
