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Nikkei Markets

Malaysia July industrial production growth lags expectation

Contraction in mining output eroded gains from robust manufacturing, electricity

KUALA LUMPUR (Nikkei Markets) - Malaysia's industrial production grew at slower-than-expected pace in July as mining output fell sharply even as manufacturing activity and electricity generation picked up pace, official data Wednesday showed.

The industrial production index -- a measure of output from mines, power plants and factories -rose 1.2% in July from a year earlier, the Department of Statistics said in a statement. That compares with the median forecast for a 3.9% on-year increase in a Nikkei Markets' poll, a reading that matched June's growth rate.

The index fell 0.4% in July from June on a seasonally adjusted basis. Economists said manufacturing - which accounts for more than two-thirds of industrial activity - helped to cushion the lower output from a major oilfield in the country that is undergoing maintenance works.

"Overall, July's weak reading is being seen as a mere temporary blip caused by weak crude oil output," said RHB Research Institute Economist Vincent Loo. "Manufacturing activity remains healthy and resilient, even in the face of protracted U.S.-China trade frictions."

There are signs that tensions between U.S. and China - both major trading partners of Malaysia - may ease as Washington D.C. and Beijing envoys plan another round of trade talks next month.

Policymakers in the export-reliant Southeast Asian nation however remain cautious over the lingering trade spat. Finance Minister Lim Guan Eng said last week that the government would keep a close watch on the economy so as to quickly undertake any measure needed to prioritise sustainable economic growth.

The latest data dovetails with trade figures released last week that showed a rebound of 1.7% in July exports thanks to strong demand for electrical and electronic products. That segment, which accounts for more than one-third of Malaysia's total exports, rose 4.5% in July from a year earlier.

Output from the key manufacturing sector increased 4% in July from a year earlier, while the electricity index climbed 2% year-over-year. Mining activity declined 8.4% due to the decrease in the crude oil and condensate index, the Statistics Department said.

On a month-over-month seasonally adjusted basis, manufacturing production edged higher by 2.7% in July and electricity index rose 4.5%. Mining activity declined 10.9% from June.

Malaysia's economic growth will likely to ease to 4.3% year-on-year in the second half from 4.7% in the first six months, said Barclays Economist Brian Tan. "We continue to expect a further slowdown in growth to 4.2% in 2020 given escalating trade tensions and slowing global economic growth."

The Manufacturing Purchasing Managers' Index, or PMI, for Malaysia contracted for the fourth straight month in August amid tough demand conditions. The latest readings are broadly indicative of annual economic growth of about 4.5% based on historical comparisons, IHS Markit said.

For the whole of 2019, Malaysia's economy will likely grow 4.3%-4.8% compared to 4.7% in 2018, according to official forecasts.

--Jason Ng

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