Malaysia industrial sector remains resilient despite external headwinds; risks likely to moderate

Industrial performance in Malaysia remained resilient during the month of July, despite external headwinds. This was especially remarkable given that weak external demand and the challenging global economic conditions have been weighing down on the performance of the manufacturing sectors in many of the regional peers.

Latest industrial production index for July expanded 4.1 percent y/y. While this was a moderation from 5.3 percent previously, it was still a strong showing considering the average 3.5 percent pace over the past six months.

Moreover, what was previously the main drag on industrial output has now become the key driver. The mining sector, which is essentially the oil and gas sector and accounting for about 29 percent of the overall weightage has reported a robust expansion of 6.0 percent in the month, after a 6.4 percent showing previously. Impact of the low energy prices is probably lapsing and production output appears to be recovering.

Despite the uncertainties in the global environment, a resilient performance in the manufacturing sector essentially means that the downside risk on GDP growth will be moderated.

"We continue to maintain a GDP growth forecast of 4.2 percent for the full year," DBS commented in its research report.