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Nikkei Markets

Malaysia's January industrial production growth beats view

Economists wary of current expansion pace as external risks loom, tip rate cut

KUALA LUMPUR (Nikkei Markets) -- Malaysia's industrial production rose at a faster-than-expected pace in January boosted by the key manufacturing sector, but economists flagged risks of growth slowing ahead due to external uncertainties that could nudge the central bank to cut the benchmark policy rate.

The industrial production - a measure of output from mines, power plants and factories - grew 3.2% in January from a year earlier, according to data released by the Department of Statistics Thursday.

The index rose 1.2% from December on a seasonally adjusted basis, it said.

Economists expect growth pace in February to decelerate from year earlier as well as from the previous month due to lingering trade tension between U.S. and China, which are Malaysia's two major trading partners. Sluggish demand for electronics and electrical products that make up more than a third of merchandise shipments of the trade-reliant country also cloud prospects of factory output growth.

"The global semiconductor billing and exports are contracting," said BIMB Research's Economist Imran Nurginias.

Other countries are also witnessing a slowdown in demand for electronics and electrical items that form the bulk of Malaysia's manufacturing output. Taiwan's export orders - a global bellwether for electronics demand - contracted in January for a third straight month, indicating smart phone companies and micro-chip makers are counting lower sales in the months ahead.

Slowing global economic growth also blurs outlook for robust expansion pace in Malaysia's factory output, said JF Apex Research analyst Nursuhaiza Hashim.

"Growth (rate) in February will be slightly slower as compared to January," she said. Nursuhaiza forecasts Malaysia's full year industrial output growth pace to slow a tad to 3% growth in 2019 from last year's 3.1%, which was the weakest rate in eight years.

A slowing industrial production could crimp Malaysia's gross domestic product growth rate in the months ahead, economists said.

"We expect GDP growth to slow further to 4.2% in first quarter of 2019 from 4.7% in the fourth quarter last year," said Prakash Sakpal, an economist at ING. A subdued inflation could prompt Bank Negara Malaysia to cut the policy interest rate by a quarter percentage point to support growth, he added.

Bank Negara Malaysia has kept the interest rate steady at 3.25% since it raised the overnight policy rate by 25 basis points in January 2018.

Data out today showed, output from the key manufacturing sector in January increased 4.2% from a year earlier, while the electricity index climbed 7.8% year-over-year. Mining activity declined 0.9% in January.

On a month-over-month seasonally adjusted basis, the manufacturing and electricity indexes edged higher 1.3% and 4%, respectively, in January, while mining activity expanded 0.3% from December.

Manufacturing sales for January rose 7% on year to 72.5 billion ringgit ($17.73 billion).

--Gho Chee Yuan

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