KUALA LUMPUR (July 12): Following better-than-expected growth of 4% in May, Malaysia's industrial production index (IPI) is expected to improve further during the second half of 2019 (2H19), according to MIDF Research.

Earlier today, the Department of Statistics Malaysia said the IPI's 4% year-on-year improvement was driven by the increase of output in electricity (5.7%), manufacturing (4.2%) and mining (3.0%).

In its monthly economic review today, MIDF highlighted that the improvement in the second half, though anticipated to be at a moderate pace, will be underpinned by lower overnight policy rate (OPR) effects, low inflationary pressure, stable domestic demand, positive progression in the construction sector and a gradual pick-up in commodity prices.

Nevertheless, the US-China trade war factor remains a downside risk to global trade activities as well as to Malaysia's industrial activities, it added.

"We expect Malaysia's external trade and industrial activities to stay on upward trajectory amid support from the mining sector," MIDF said.

The mining sector output, which increased by 3% from a year ago, was noted to be the highest growth since September 2017.

However, MIDF said the prospect of manufacturing sales is slightly cloudy following the effects of a rising trade war and declining global business optimism.

When compared globally, MIDF pointed out that IPI performances across major and emerging economies moderated in May due to global trade uncertainties, geopolitical stress in Europe, and volatility in global commodity prices.

In fact, ASEAN economies such as Philippines (-2.1%), Thailand (-4.0%) and Singapore (-2.4%) experienced contractions.

"Looking ahead, we view global trade activities to stay at modest pace amid trade war effects, volatility of commodity prices and declining business optimism," MIDF said. It has maintained its forecast IPI growth at 2.9% in 2019, based on latest macro trends and indicators.