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Nikkei Markets

Malaysia's April industrial production rises, beats view

Analysts wary of sustaining factory output growth as trade war clouds outlook

KUALA LUMPUR (Nikkei Markets) -- Malaysia's factory output grew faster than expected in April from a year earlier, official data Tuesday showed, though analysts warned of looming economic slowdown from ongoing trade tension.

The industrial production index-which measures manufacturing activities, power generation, and mining output-rose 4% in April when compared to the same month in 2018, the Department of Statistics said in a statement. In March, the index had risen 3.1% year-on-year.

Economists said ongoing trade tensions between U.S. and China, two of Malaysia's major trading partners, will dampen prospects of stronger growth at the third-largest Southeast Asian economy in the coming quarters.

"Overall, we continue to forecast GDP growth slowing modestly to 4.5% in 2019 from 4.7% in 2018." said Barclays Economist Brian Tan. "Despite the upside surprise in April, the economic outlook is darkening due to escalating trade tensions."

Still, Malaysia is confident that economic growth will likely be "robust" and "healthy" in the second quarter, Finance Minister Lim Guan Eng said last week, following release of external trade data for April.

Shipments from the trade-dependent nation unexpectedly rebounded 1.1% in April from a year earlier after two consecutive months of declines, while imports rose 4.4% year-on-year.

The latest April factory output growth figure was higher than the 2.5% year-on-year increase predicted in a Nikkei Markets' poll of economists. The index meanwhile climbed 2.0% in April from March on a seasonally adjusted basis.

Meanwhile, manufacturing sales for April rose 6.8% on year to 69.9 billion ringgit ($16.79 billion).

Output from the key manufacturing sector expanded 4.3% from a year earlier, while mining activity rose 2.3% in April. The electricity index climbed 5.8% year-over-year.

On a month-over-month seasonally adjusted basis, the manufacturing and electricity indexes edged higher by 1.5% and 1.7% respectively in April, while mining activity expanded 3.1% from March.

"We will look for more evidence of activity strength persisting in the months ahead before adjusting our 4.6% annual growth forecast for 2019," said ING Asia Economist Prakash Sakpal. "Given the intensified global trade risks, any upward adjustment is risky."

Signs of fatigue are evident in the economy as data out last month showed Malaysia's economic expansion pace decelerated to 4.5% in the first three months of the year following slowing domestic demand, its key engine of growth.

Malaysia's Nikkei Manufacturing Purchasing Managers' Index, or PMI, fell to 48.8 in May from 49.4 a month earlier. A reading above 50 signals expansion of the manufacturing sector, while a print below 50 represents a contraction.

In May, Bank Negara Malaysia cut its overnight policy rate for the first time in nearly three years to perk up growth in a slowing economy. The central bank also cautioned that potential downside risk still lingered even after the rate cut.

Malaysia's economy will likely grow 4.3%-4.8% this year compared to 4.7% in 2018, according to official forecasts.

--Jason Ng

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