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Malaysia's electronics-makers cautious despite solid overseas sales

[KUALA LUMPUR] Malaysia's key electronics sector has been winning more overseas orders, but there's no sign of a sustained surge that would lift an economy growing at its slowest pace in more than two years.

Like other commodity producers, Malaysia is suffering from sliding oil and gas prices, and its best hope for recovery may rest with its manufacturing sector, especially electronics firms clustered on the tech-island of Penang.

Shipments of electrical and electronic goods in October jumped 22.7 per cent from a year earlier, lifting export growth to 16.7 per cent in ringgit terms.

Factories that make these goods are doing better than the rest, with production in October up 13.9 per cent from a year earlier, more than triple the increase of overall industrial output.

Still, manufacturers are not convinced the momentum can be maintained. "Overall companies are still cautious," said Wong Siew Hai, chairman of the Malaysian American Electronics Industry (MAEI), which counts Intel, Dell and Motorola among its members.

The increase in electronics exports - which account for about one-third of the total - partly reflects the ringgit's nearly 18 per cent tumble against the dollar this year. When presented in dollars, shipments seem weaker. "We need more evidence to show there's a positive outlook for 2016," Mr Wong added.

Until recently, Malaysia was one of South-east Asia's fastest-growing economies. But the annual growth rate dropped from 6.5 per cent in 2014's fourth quarter to 4.7 per cent in the July-September.

Tumbles in the prices of commodities and the demand for them, plus weak domestic demand, cloud the country's growth outlook.

"Malaysia definitely needs all the help it can get from the electronics products side," said Wellian Wiranto, an economist at OCBC in Singapore.

A recent survey showed consumer confidence to be the worst on record, with nearly half of respondents reporting lower incomes. Many were squeezed after a consumption tax was imposed in April.

Drooping domestic demand is affecting local electronics retailers such as Yap Hong Yew, who owns a Kuala Lumpur mobile-phone shop. "Of course sales have gone down," Mr Yap said. "We've had to reduce some profit margins." Conditions are somewhat better for electronics firms plugged into global supply chains, said the MAEI's Mr Wong, adding that orders are getting a pre-Christmas lift, from automotive and mobile-device components especially.

The relative strength of electronics provides some support as weak commodity exports weigh on growth, said Mr Wiranto. "It's not that things are going great, it's just that things are less bad in Malaysia in terms of the trade cycle, at least on the electronics side."