Malaysia’s manufacturing activity tapers, GDP to see slowdown

The tapered industrial production growth together with Malaysia’s recent dwindling export numbers, points to a weaker economic outlook.

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Industrial production (IP) for Malaysia expanded 2.2 percent year-on-year for August, lower than the 2.6 percent increase in July.

The outcome was also below the 2.3 percent growth consensus expected from economists.

Growth for August was supported by the manufacturing and electricity sectors, which increased in output by 4.3 percent and 4 percent on a year-on-year basis, compared to the 5.2 percent and 4.5 percent increase in July, as per data released by the Department of Statistics Malaysia.

For the manufacturing sector’s gains, contributors include electrical and electronic equipment products, petroleum, chemical, rubber and plastic goods.

Meanwhile, the mining sector continued on its contraction, down by 4.6 percent in August and extending its decline from the 5.9 percent drag in July, due to lesser contributions from the natural gas and crude oil segments.

ING Bank’s Economist for Asia Prakash Sakpal noted that Malaysia’s export and manufacturing production growth is seeing a slowdown. Manufacturing indicators, such as sales, employment, and wages, registered slowdowns for August, he said.

In August, Malaysia’s exports contracted by 0.3 percent from a year ago, reversing from the 9.4 percent growth in July, marking it the second negative print in two years. The previous contraction was a decline in February due partly to Chinese New Year celebrations where factories stopped production for the holidays.

As manufacturing contributes to almost one quarter of Malaysia’s economy, the slowdown would translate to a lower economic growth for Malaysia, Mr Sakpal said. The high base effect from last year could also be a factor in driving a lower gross domestic product (GDP) performance for the country, he added.

Mr Sakpal expects Malaysia’s GDP to settle around 4 percent for the second-half of this year, and full-year growth to be at 4.5 percent. The growth forecast for the third quarter remains at 4.1 percent.

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