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Nikkei Markets

Malaysia's May industrial production growth beats view

Lingering Sino-US trade tension, weak commodity prices mar future growth outlook

The latest data suggests economic expansion pace between April and June would be stable although threats to growth lingered over the remaining quarters due to trade tensions between U.S. and China.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's industrial production grew faster than expected in May thanks to higher manufacturing activity and electricity generation, firming expectation of steady economic expansion in the second quarter even as Sino-U.S. trade tension blurs outlook for the months ahead.

The industrial production index -- a measure of output from mines, power plants and factories -- rose 4% from a year earlier, the Department of Statistics said in a statement on Friday. A Nikkei Markets poll had predicted median increase of 3.6% year-on-year. Even in April, the index had expanded 4% year-on-year.

Economists said the latest data suggests economic expansion pace between April and June would be stable although threats to growth lingered over the remaining quarters due to trade tensions between U.S. and China.

"We're not really convinced of a stronger rebound in the coming months," said AllianceDBS Economist Manokaran Mottain, who is predicting a 4.5% gross domestic product growth in the second quarter. "We're still cautious."

The government is set to release second-quarter GDP data in August.

Earlier this week, Bank Negara Malaysia kept the benchmark policy interest rate unchanged as expected, noting downside risks to economic growth tracking external uncertainties. The central bank had cut the key rate by 25 basis points in May after holding it steady for more than a year.

Exports have picked up pace and rose 2.5% in May from a year earlier, according to earlier data. However, shipments of electrical and electronics goods, which account for more than one-third of Malaysia's total exports, grew a mere 0.5% in May.

While growth appears to be holding up in the near term, "we expect BNM to ease nonetheless in response to signs that trade tensions are escalating rather than being resolved, especially if the U.S. imposes 25% tariffs on nearly all of its imports from China," said Barclays Economist Brian Tan.

The index fell 0.3% from April on a seasonally adjusted basis, the Department of Statistics said.

Output from the key manufacturing sector increased 4.2% from a year earlier, while electricity index climbed 5.7% in May. Mining activity gained 3%.

On a month-over-month seasonally adjusted basis, the manufacturing index edged 0.2% higher, while the electricity index gained 0.4% in May. The mining index fell 1.4% on a month-on-month basis.

Manufacturing sales for May rose 6.7% on year to 69.7 billion ringgit ($16.96 billion).

Policymakers in the third-largest Southeast Asian economy are increasingly worried that heightened uncertainties, trade tensions and extended weakness in commodity sectors risk denting future growth.

Economic growth pace in the first quarter decelerated to 4.5% year-on-year from 4.7% in the previous quarter as consumers trimmed property purchases, while businesses pared investments.

--Jason Ng

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