Malaysian industrial production for August is expected to disappoint

Malaysian industrial production figure for August is expected to disappoint. The headline production output growth is likely to moderate to 2.0% YoY, down from 6.1% in the previous month. Market is looking for a 4% rise, on the back of the upside surprise in export growth for the same month. Export sales expanded by 4.1% YoY, stronger than market expectation of 1.3%. However, the point to note is that sales were up mainly because of valuation effect. 

Trade figures are all reported in local currency terms. And the ringgit has depreciated by about 28.9% YoY against the USD in August. Such drastic depreciation in the local currency has essentially provided the valuation lift to the headline trade figures. In USD terms, exports would have shrunk by 18.6% compared to the same period last year. As such, the take is that industrial production, which supposedly doesn't include the currency or price effect, will disappoint instead. 

The global environment is becoming more challenging. Risks surrounding the US rate hike amid a sluggish recovery, a cloudy Eurozone outlook and the deceleration in China have compounded the global woes and weighed down on external demand. On that basis, production can't be good, especially when the domestic engines are also cooling.