Malaysia's industrial output rose a smaller-than-expected 13.3 percent in June from a year ago, as producers braced for slower demand in key export markets, including the US and China.
Economists said the June numbers heralded a phase of slower growth for Malaysia's export-reliant economy.
Like other Asian exporters, Malaysia is contending with the effects of a spike in oil prices and slower US and China expansion.
Malaysia is a net exporter of oil, but economists worry that the recent surge in prices could dampen growth of its trading partners and crimp demand for its exports.
"Judging from the US job numbers, maybe the US economy is not that strong after all and we can expect a lot less bullish outlook for Malaysia next year," said Azrul Azwar Ahmad Tajudin, an economist with MIDF Bhd.
Growth in the index - which measures manufacturing, mining and electricity output - fell short of the 15.3 percent expansion forecast by a Reuters poll of economists. A revision in May's growth data to 12.5 percent from 12.8 percent added to the soft tenor of the report.
"I think the second quarter GDP (gross domestic product) will easily surpass the 7.0 percent mark. The real test will be in the second half," said Lee Heng Guie, an economist with investment bank CIMB.
"I expect growth to moderate in the second half. Given the strong growth in the first half, on the annualised basis we will still see quite a credible growth for the full year."
Malaysia's economy grew 5.3 percent last year and the government has said 2004 expansion may top official estimates of 6.0-6.5 percent. But a disappointing US jobs report last Friday deepened economists' concerns that Malaysian exports would grow at a more subdued pace. The United States is Malaysia's largest trading partner, taking about a fifth of its exports.
Economists said growth would also depend on Malaysia's ability to boost the competitiveness of its core electronics sector, which contributes half of exports.
"Generally, Malaysia's electronics sector has not yet graduated from the low-value to the higher-value chain. You have to do it fast or risk being left behind," said Wan Suhaimi, an economist with AmSecurities.
Malaysia, which has lost out to China as a destination for foreign investment, is trying to spur its manufacturers to produce more high-value products from the current exports of semiconductor devices, radio and television sets and cables and wires.
Malaysia is also reviving its farm sector to wean the economy's dependence on electronics exports.
Data from the Statistics Department on Monday showed industrial output fell 6.9 percent seasonally unadjusted from May. It does not release seasonally adjusted data for the change between months.
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