Weaker April economic indicators point to uneven recovery
KUALA LUMPUR, June 22 — Malaysia's April index indicating future economic activity declined for a second month in a row suggesting uncertainty in the Eurozone, China and US are weighing down the economy.
The index indicating current economic activity also contracted in April and was made worse by a decline in salaries and employment in the manufacturing sector.
This comes as China, Malaysia's largest trading partner, also saw its manufacturing sector come under pressure with the HSBC Flash Purchasing Managers Index, a monthly indicator of China's industrial activity, falling to a seven-month low of 48.1 in June.
Malaysia's leading index, which helps predict the direction of the economy, registered a decline of 0.5 per cent, in April, the same rate of decline in March and contrasts sharply with an increase of 1.7 per cent in February.
"This suggests that the improvement in economic activities will likely remain uneven in the months ahead, amid an escalation of contagion and uncertainty concerning how the European authorities will react to calm investors’ concerns over Spain’s deteriorating financial conditions and Greece’s request to renegotiate terms of austerity measures," said RHB Research Institute in a report.
The coincident index, which measures current economy activity, also shrank 1.9 per cent in April due to decreases in the retail, industrial production, and manufacturing salaries and wages indices.
RHB noted however that the lagging index, which records past economic activity managed to strengthen by 1.3 per cent month-on-month in April, after easing by 1.1 per cent in March, and stagnating in February.
The performance of the lagging index was mainly attributed to a hike of 0.5 per cent in the number of new vehicles registered in April as compared with a decline of 0.1 per cent in March.
Expected manufacturing sales fell by 0.3 per cent month-on-month in April, and the number of new companies registered also declined by 0.1 per cent.
The number of approved housing units however rose slightly by 0.1 per cent.
Manufacturing employment contracted by 0.3 per cent in April while capacity utilisation was flat during the month.
April EPF contributions however rose 0.2 per cent.
RHB said that it expects the second half of the year to fare better economically than the first and a pick up in GDP growth is also expected next year.
"Barring a break-up of the Eurozone, we are of the view that prospects of the global economy will gradually improve towards the end of the year once concern over the euro-debt crisis subsides," it said.
"What is critical is the US economy, which has weathered the euro-debt crisis relatively well."
The US Federal Reserve recently lowered its expectations for US growth this year to 1.9 - 2.4 per cent, from earlier forecasts of 2.4-2.9 per cent in April.
This was largely due to the impact of the Eurozone fiscal crisis.
China's HSBC Flash PMI indicated bearish sentiment for exports of the world's second largest economy as the new export orders sub-index plumbed levels unseen since the depth of the 2009 financial crisis.
RHB however forecast Malaysia's GDP to expand faster in the second half of the year at 4.7 per cent as compared with 4.4 per cent in the first half giving a full-year, real GDP growth of 4.5 per cent, down from 5.1 per cent in 2011.
It also expects the economy to bounce back next year and expand at a quicker pace of about 5.0 per cent in 2013.