Malaysia's industrial production pegged to drop to 2.3%

Outlook to remain flattish, says analyst.

According to DBS, industrial production is up this Thursday and Bank Negara is also due to meet on policy the same day. The headline production output number will not be glamorous. A moderation to 2.3% YoY, down from 4.8% has been penciled into DBS' forecast. This will be in line with the fact that exports have fallen sharper than expected by 5.8% YoY, down from the previous decline of 3.3% in April.

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Apart from the technical base effect, the sequential improvement has not been encouraging. Indeed, global demand is recovering but not picking up in a big way. Pockets of risks remain in the developed economies while key market in Asia, China, is going through its internal consolidation.

The outlook ahead will likely remain flattish at best. One should take comfort that the industrial production output growth has, and will likely remain positive in the coming months while the global economy goes through this sluggish normalisation process.

Indeed, that will likely be the assessment of the central bank when it meets later in the day. No surprise is expected as the authority will most likely keep the Overnight Policy Rate (OPR) unchanged at 3.00%.

Growth hasslowed while inflation remains benign. Though domestic demand is still resilient, the upside in the external environment is limited. 

And while the current account has been falling steadily,the central bank is allowing the adjustmentsto be made on the currency and preferring to keep ratessteady. Overall, risks on inflation and growth are well-balanced. Bank Negara will mostlikely maintain a stable monetary policy.