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Nikkei Markets

Malaysia's May industrial output growth slows, matches view

Economists say raging trade war to weigh on economic growth in months ahead

Malaysia's economy is set for a slower growth in the second quarter and faces mounting risk from a protracted trade dispute.    © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's industrial production growth pace decelerated in May as output eased across all sectors, reinforcing market expectations that economic expansion is likely to slow in the quarters ahead.

The industrial production index -- a measure of output from mines, power plants and factories -- rose 3% in May from a year earlier, the Department of Statistics said in a statement. The reading matched the median forecast in a Nikkei Markets poll of nine economists. In April, the index rose 4.6% year-on-year.

Economists said the data not only indicates that the Southeast Asia's third-largest economy is set for a slower growth in the second quarter, but also faces mounting risk from a protracted trade dispute.

"May's ebbing IPI number was likely attributed to fewer working days during the month," said RHB Research Institute Economist Vincent Loo. But the data is also an indication that trade has lost steam amid a slowdown in global economy and growing concerns over the U.S.-China trade war, he said.

Malaysia mostly relies on domestic private investment and consumer spending to power growth, although strong demand for exports ranging from electronics to palm oil have provided additional boost to the economy.

However, concerns over growth have risen as U.S. and China - both are major trading partners of Malaysia - kicked off a trade war, unleasing a series of tariffs on each other's items. Earlier data showed Malaysia's May exports rose 3.4% from a year earlier compared with April's 14% year-on-year surge.

Output from the key manufacturing sector increased 4.1% from a year earlier, while electricity generation rose 2.6% in May. The mining index declined 0.5% year-over-year. Manufacturing sales for May rose 5.5% on year to 65.3 billion ringgit ($16.16 billion).

On a seasonally-adjusted month-on-month basis, the industrial production index rose 0.2% in May. When compared to April, the manufacturing index edged 0.8% higher, while the mining sector was largely flat. Electricity production contracted 0.5% in May from April.

Malaysia's gross domestic product growth will likely come in at 5.0% year-on-year in the second quarter, compared to 5.4% in the first quarter, said Nomura, noting that industrial production growth for April-May fell to 3.7% year-on-year from 3.8% in the first three months of the year.

"These factors pose downside risks to our 2018 GDP forecast, which already anticipates growth slowing to a below-consensus 5.1% in 2018 from 5.9% in 2017," Nomura added.

The Malaysian government has said it was confident that economy will grow 5.4% this year, compared to its earlier projection of an expansion between 5.5% and 6.0%.

--Jason Ng

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