AmWatch - Econ Watch : Signals of mixed economic performance during the start of 3Q15, 11 Sep 2015

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Econ Watch : Signals of mixed economic performance during the start of 3Q15

Malaysia’s industrial production index (IPI) grew at a healthier pace of 6.1% YoY in July, from +4.3% in June. In particular, IPI grew in July on the back of the manufacturing and mining output, which advanced by 4.2% and 14.0%, respectively. Meanwhile, the electricity sector contracted by 1.2% YoY. Within the mining segment, the expansion was contributed by the increase of the Crude Oil index (+7.5%) and Natural Gas index (+22.3%)

The manufacturing output gained traction, partly driven by shipments abroad. The major sub-sectors of manufacturing which increased in July 2015 include E&E (+7.2%), Petroleum, Chemical, Rubber and Plastic Products (3.3%), and Transport Equipment and Other Manufactures (8.8%). Manufacturing output accounts for 66% of total IPI. That said, weak domestic demand had suppressed overall manufacturing sales in July. Sales value declined by 1.2% YoY to RM54.2bil vs. +1.7% in June. Forward-looking indicators suggest that Malaysia’s manufacturing segment remained weak as monthly Purchasing Managers’ Index (PMI) contracted in August. The manufacturing PMI stood at 47.2 points in August, broadly unchanged from July’s reading of 47.7. It has been trending below the 50-threshold for five consecutive months and is at the lowest level since October 2012.

Growth in the global manufacturing sector remained lacklustre at the start of 3Q15. JP Morgan Global Manufacturing PMI stood at 50.7 points in August, broadly unchanged from 51.0 in July. The headline index has been hovering below the long-run trend in recent months. New order was lacklustre, which suggests that soft growth may continue in the coming months in tandem with early signs that growth in consumer spending may have lost growth traction. Recent indicators signal mixed economic performance. Output levels remained healthy with persistent growth for the IPI, especially for manufacturing output which is a good proxy for quarterly GDP. Elsewhere, loans growth advanced further in July to register +9.6% YoY vs. +9.1% in June. The country’s leading index posted an uptick in June, with the 0.8% YoY increase to 117.6 points (May: -0.2% YoY). However, there was moderation in domestic demand and exports during the month of July. Also, the overall weak economic sentiments and weaker-than-expected Ringgit currency are expected to remain a drag on the economy.

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