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Nikkei Markets

Malaysia's industrial production grows at slower pace in June

Economists say growth likely peaked in June quarter, flag slowdown amid trade spat

KUALA LUMPUR (Nikkei Markets) -- Malaysia's industrial production growth decelerated slightly in June, with analysts warning that growth of the export-dependent economy will likely slow in the second half amid headwinds from Sino-American trade war.

The industrial production index -- a measure of output from mines, power plants and factories - rose 3.9% in June from a year earlier mainly driven by higher output at manufacturing and mining sectors, according to the Department of Statistics. In May, the index rose at a revised pace of 4.2% on-year.

Economists said expansion of the third-largest Southeast Asian economy likely accelerated from the first three months and peaked in the second quarter thanks to favorable base effects.

Malaysia's industrial production in June was "stable but weakening," said Barclays Economist Brian Tan, who is forecasting a 5% year-on-year growth in gross domestic product for the June-end quarter after accounting for latest high-frequency data on economic activity.

Policymakers in Malaysia are increasingly worried that escalating trade tension between its major trading partners would dent exports and hurt broader economic growth prospects. The government is considering "contingency measures" in an event the U.S.-China tariff spat escalates or worsens.

"But there's another line of thought that the trade dispute can be resolved by the end of the year," Finance Minister Lim Guan Eng said on Monday. "We have to wait and see."

That heightened uncertainty however, has weighed on trade in Asia. In June, exports fell 3.1% in Malaysia and plunged over 17% in Singapore and nearly 14% in South Korea. Shipments from China shrank 1.3% and 6.7% from Japan.

Latest industrial production data showed that output from Malaysia's key manufacturing sector increased 3.8% from a year earlier, while electricity index climbed 1.7% in May. Mining activity gained 4.6%.

On a month-over-month seasonally adjusted basis, the manufacturing index fell 2.8% while the electricity index declined 3.6% in June. The mining index fell 2.8% in June from May.

For the April-June period, industrial production rose 3.9% year-on-year, compared with 2.7% in the second quarter. That signaled better economic growth in the second quarter, said MIDF Amanah Investment Bank.

Moving forward, industrial production will continue to expand but at a "moderating pace" in the second half due to the ongoing trade tensions, it added.

Economic growth 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. The government is expected to report second quarter gross domestic product data on Aug. 16.

-- Jason Ng

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