Published December 12, 2008

Malaysian industrial output down in October

Data shows growth in fourth quarter will be much softer, say economists

By PAULINE NG
IN KUALA LUMPUR

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in Kuala Lumpur MALAYSIA'S industrial production declined 3.1 per cent in October as manufacturing output shrank, the second consecutive monthly drop, which indicates that growth in the fourth quarter would be much softer, economists said.

Crisis fallout: The slide in industrial production is yet another sign Malaysia is already feeling the pinch of a global slowdown. But senior officials say the country's more diversified economy and stronger fundamentals would help avert a recession next year

Coming on the heels of September's 1.7 per cent month-on-month drop, the slide in production is yet another sign the country is already feeling the pinch of a global slowdown.

October's industrial production index reading of 132.7 was the same for February - traditionally lower because there are fewer working days owing to the festive Chinese New Year holidays.

Significantly, all the three indices of mining, manufacturing and electricity contracted in the month, the electricity index shrinking 1.6 per cent year on year, according to data from the Statistics Department.

Mining output showed the biggest decline of 5.4 per cent year on year after contracting 4.8 per cent in September as global oil prices tanked to less than a third of July's peak on weaker demand. Crude oil and natural gas production decreased 6.8 per cent and 3.1 per cent, respectively, over the same period last year.

But the decline was most keenly felt in the manufacturing sector as production declined 2.5 per cent year on year following a contraction of one per cent in September.

The exports of electrical and electronic components account for some 40 per cent of total exports, and a slump in global demand has already led to fewer production shifts and in some cases the laying-off of workers.

Economists said the decline in industrial output was not unexpected given that October exports had fallen by 14.2 per cent from September.

'It's a sign fourth-quarter growth will slow down more significantly,' said an economist whose latest forecast for the last quarter has been revised to between 3 and 3.5 per cent from 3.8 per cent.

The economy expanded 4.7 per cent in the third quarter and because first and second-quarter growth came in over 7 per cent, is likely to meet the government's revised target of a minimum 5 per cent expansion this year. Growth is expected to moderate to 3.5 per cent next year.

For the first 10 months of the year, industrial production registered an expansion of 2.7 per cent; manufacturing output grew 3.3 per cent for the period.

A number of senior officials continue to maintain Malaysia's more diversified economy and stronger fundamentals would help avert a recession next year.

Kuala Lumpur has thus far announced a modest RM7 billion (S$2.92 billion) economic stimulus package but economists said the health of Malaysia's main trading partners would be key to its economic health.

China - one of its bigger export markets - saw its own exports falling worse than expected in November.