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Nikkei Markets

Malaysia's December industrial growth rises 3.4%, beats view

External risks cloud 2019 prospects after last year's factory output growth slows

The government had cautioned external trade in 2019 will be affected by slowing global economy   © Reuters

KUALA LUMPUR (Nikkei Markets) - Malaysia's industrial production rose at a faster-than-expected pace in December thanks largely to recovery in mining output.

However looming external risks and tepid global demand for manufactured goods threaten to crimp economic activities in Southeast Asia's third largest economy, analysts said.

The industrial production-a measure of output from mines, power plants and factories- climbed 3.4% in December from a year earlier, the federal Statistics Department said in a statement. That compares with the median forecast for a 3% increase in a Nikkei Markets' poll and November's 2.5% on-year rise.

For the whole of 2018, the index rose 3.1%, the weakest rate in eight years.

Economists said subdued global demand is weighing on Malaysia's export-focused factories, raising risks for the Southeast Asian nation's economy that is increasingly relying on domestic demand to power growth this year.

Fourth-quarter economic growth may slow to 4.2% on-year amid contraction in the commodities sector, said CIMB Investment Bank Economists Michelle Chia and Lim Yee Ping. Meanwhile, consumer spending, manufacturing and construction sectors are expected to moderate, they added.

Economic growth rate has decelerated for four straight quarters and expanded 4.4% in July-to-September. Malaysia is expected to report on Thursday its gross domestic product data for the final quarter of 2018.

The government had cautioned external trade in 2019 will be affected by slowing global economy, potential disruption from U.S.-China tariff tussle and softer commodity prices.

In December, output from the key manufacturing sector increased 4.4% from a year earlier, while electricity index climbed 2.7%. Mining output rose 1% on year in December.

The readings helped Malaysia's 2018 manufacturing output grow 4.8% and electricity production expand 3.7%, However, mining output fell 1.9% last year.

Manufacturing sales for December rose 7.5% on year to 72.3 billion ringgit ($17.8 billion) that helped the full year's manufacturing sales expand 7.7% to 24.8 billion ringgit.

"We think the central bank considers the economic risks fairly balanced between growth and inflation and will leave monetary policy on hold throughout 2019," said ING Asia Economist Prakash Sakpal.

Malaysia's central bank kept the benchmark policy interest rate unchanged in January at its first of six scheduled meeting this year amid expectation of steady economic expansion in 2019 while inflation remains modest.

--Jason Ng

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