Malaysia May industrial production soars by 7.6% YoY

The pickup in headline growth outran the 4% estimated growth in exports.

According to Nomura, industrial production (IP) rose by a better-than-expected 7.6% y-o-y in May from 3.2% in April, while all IP components improved significantly. Importantly, the pickup in headline growth was much faster than what was implied by export growth, which our regression model estimated at 4%.

"We think this is a clear indication that domestic demand remains strong, and is contributing the additional growth to IP," said Nomura.

Here's more from Nomura:

This strength in domestic demand is consistent with Bank Negara Malaysia‟s (BNM) assessment, and we believe it is unlikely to cause a shift in BNM‟s stance. Still, it reinforces the view that BNM has a high hurdle relative to other regional central banks when considering rate cuts as a response to rising external risks.

Moreover, as fiscal easing is likely to be prolonged given the delay in the elections, it reduces the need for more accommodative monetary policy. As such, we continue to expect BNM to stay on hold for the rest of 2012. In terms of growth, we believe risks to our Q2 GDP forecast of 4.7% are now skewed to the upside, but not enough to justify upgrading the full year forecast.