economic update - resilient, but slowing economic growth - 12/08/2010

8/9/2019 Economic Update - Resilient, But Slowing Economic Growth - 12/08/2010

http://slidepdf.com/reader/full/economic-update-resilient-but-slowing-economic-growth-12082010 1/10

12 August 2010

Economic Update

Resilient, But Slowing Economic Growth

In line with a slowdown in exports, real GDP growth is estimated to have eased to around

8.1% yoy in the 2Q, from +10.1% in the 1Q. Indeed, the slowing growth will likely continue

into the 2H of the year, on the back of a softening in external demand for the country’s

exports on account of a slowdown in the global economy.

Real export growth is likely to have moderated to 12.6% yoy in the 2Q, from +19.3% in

the 1Q. This was the first easing after returning to a positive growth in the 4Q, as global

demand for the country’s exports softened and the exceptionally high growth in exports due

to the low base effect normalised. Domestic demand, underpinned by a resilient consumerspending and a revival private investment, however, would provide some cushion.

On the supply side, the manufacturing sector expanded at a more moderate pace in the 2Q,

as output of the export-oriented industries slackened. Similarly, the services sector is

estimated to have grown at a slower pace, in tandem with a slowdown in trade activities.

Also, construction and agriculture sectors grew at a slower pace. These, however, were

mitigated by a pick-up in mining output during the quarter.

Going forward, the global economy is likely to slow down in 2H 2010, as worldwide stimulus

spending dissipates and austerity measures in some European countries to address fiscal

deficit and debt problems begin to bite. This will likely be compounded by the policy

normalisation and tightening measures introduced in some countries, particularly in Asia, thatwill likely slow down economic activities in these countries. As a whole, we expect the

country’s exports to slow down in 2H 2010, after a strong pick-up in the 1H.

Slower export growth will likely translate into a slower increase in domestic demand, as

business and consumer confidence will likely be impacted. As a result, consumer spending

is envisaged to expand at a slower pace, while business spending will likely slow down. As

a whole, we expect real GDP growth to slow down to 4.5% yoy in 2H 2010, from +9.1%

estimated for the 1H. For the full-year, real GDP will likely expand by 6.8% in 2010, a

rebound from -1.7% in 2009.

Executive Summary

Peck Boon Soon

(603) 9280 2163

[email protected]

Please read important disclosures at the end of this report.

Malaysia

• • • •

PP7

767/09/2010(025354)

MARKETDA

TELINE

A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com



ECONOMIC UPDATE2


Resilient, But Slowing Economic Growth

The Malaysian economic growth is estimated to have moderated to 8.1% yoy in

the 2Q, from +10.1% in the previous quarter. This was due to a slowdown in

external demand for the country’s exports and as the exceptionally high export

growth normalised. A pick-up in domestic demand, on the back of a resilient

consumer spending and a turnaround in private investment, however, providedsome cushion. The slowdown in economic growth will likely continue into the

2H of the year, as the impact of worldwide fiscal spending dissipates and

austerity measures in some European countries begin to bite. These will likely

be made worse by policies tightening in some countries, particularly in Asia. As

a result, we expect real GDP growth to soften to 4.5% yoy in 2H 2010, from

+9.1% in the 1H. Overall, real GDP is envisaged to recover to +6.8% in 2010,

from -1.7% in 2009.

Real GDP Eased I n The 2 Q, Af te r Reach ing A Peak I n The 1 Q

In line with a moderation in exports and as the exceptionally high export growth

normalised, real GDP growth is estimated to have eased to around 8.1% yoy

in the 2Q, from +10.1% in the 1Q (see Chart 1). Indeed, the slowing growth will

likely continue into the 2H of the year, on the back of a slowdown in the global

economy, as the impact of worldwide fiscal spending dissipates and austerity

measures in some European countries begin to bite. These will likely be made worse

by policies tightening in some countries, particularly in Asia. As a result, we expect

real GDP growth to soften to 4.5% yoy in 2H 2010 , from +9.1% in the 1H.

Compared to the previous quarter, real GDP growth, however, is estimated to have

bounced back to increase by 2.7% qoq in the 2Q, from -2.6% in the 1Q, as the 1Q

was affected by shorter working days as a result of the festive season. Overall, real

GDP is envisaged to recover to +6.8% in 2010, from -1.7% in 2009.

A Slow dow n I n Expo r t s As The Excep t i ona l ly S t rong G rowt h

Norm a l i sed

We estimate that real export growth is likely to have moderated to 12.6%

yoy in the 2Q, from +19.3% in the 1Q. This was the first easing after returning

to a positive growth in the 4Q, due to softer global demand and as the exceptionally

high growth in exports due to the low base effect normalised. The slower growth

was reflected in a softening of demand for the country’s exports from the US and

European Union (EU), which eased to 5.6% and 22.8% yoy respectively in the 2Q

(in nominal terms), from the corresponding rates of +10.6% and +29.1% in the 1Q.

Similarly, exports to China, Hong Kong and Asean slackened to 28.2%, 24.9% and

17.2% yoy respectively in the 2Q, from the corresponding rates of +67.9%, +36.8%

and +38.6% in the 1Q. These were, however, mitigated by a pick-up in exports to

Japan, which strengthened to 33.9% yoy in the 2Q, from +14.0% in the 1Q.

Chart 1Slower Exports And real GDP Growth In

The 2Q

% yoy

-20

-15

-10

-5

0

5

10

15

20

25

00 01 02 03 04 05 06 07 08 09 10

Exports

➤ ➤ ➤ ➤ ➤

➤ ➤ ➤ ➤ ➤

GDP

Domesticdemand

➤ ➤ ➤ ➤ ➤

Chart 2E&E and Non-E&E Exports Slowing Down

But Commodit ies Picking Up

% yoy

-60

-40

-20

0

20

40

60

80

97 00 03 06 09

Non-E&E mfg.goods E&E Commodity

Rea l GDP g rowth i s

estimated to have eased

to around 8.1% yoy in the

2Q, from +10.1% in the

1Q

Economi c g r owth i s

envisaged to slow down

further in 2H 2010

Rea l expo r t g r owth i s

likely to have moderated

to 12.6% yoy in the 2Q,

due t o so f t e r g l oba l

demand and a s t he

exceptionally high export

growth due to the low base

effect normalised



3ECONOMIC UPDATE


In terms of products, the slowdown in exports was due to slower increases in the

exports of electrical & electronic (E&E) products and non-E&E manufactured goods

(see Chart 2). These were, however, mitigated by a pick-up in the exports of major

commodity products. The exports of E&E products weakened to 16.1% yoy in the

2Q, from +36.3% in the 1Q and compared with +18.3% in the 4Q. The slowdown

was broad-based, from the exports of electrical machinery & apparatus (largely

semiconductors) to office machines & auto data processing equipment (largely

computers) and telecommunications equipment. The exports of semiconductors andtelecommunications equipment slackened to 20.4% and 17.5% yoy respectively in

the 2Q, from the corresponding rates of +34.6% and +43.5% in the 1Q. The former

was in tandem with a slower growth in worldwide semiconductor sales, which

moderated to 47.1% yoy in the 2Q, from +53.4% in the 1Q and compared with

+10.4% in the 4Q. These were made worse by a slowdown in the exports of

computers, which slowed down sharply to 8.4% yoy in the 2Q, from +36.0% in the

1Q.

In the same vein, the exports of non-E&E manufactured goods moderated to an

estimate of 20.5% yoy in the 2Q, from +29.9% in the 1Q and compared with +5.1%

in the 4Q, indicating that demand for these products are beginning to slow. This was

due to a slowdown in the exports of wood, rubber, paper & pulp, chemical &

chemical, metal products, optical & scientific equipment, toys & sporting goods and

furniture & parts as well as a decline in the exports of transport equipment and non-

metallic mineral products. These were, however, mitigated by a pick-up in the

exports of food and petroleum products. The exports of major commodity products,

on the other hand, strengthened to +40.3% yoy in the 2Q, from +22.3% in the 1Q

and compared with -18.0% in the 4Q. This was reflected in a turnaround in the

exports of liquefied natural gas (LNG), which recorded an increase of 62.3% yoy in

the 2Q, from -13.7% in the 1Q and -43.0% in the 4Q. This was, however, offset

partially by a slowdown in the exports of crude petroleum and palm oil, which eased

to 59.4% and 16.5% yoy respectively in the 2Q, from the corresponding rates of

+69.3% and +44.1% in the 1Q.

St ronger Domest i c Demand Prov ided Some Cush ion

Domestic demand, on the other hand, is estimated to have grown at a faster pace

of 6.9% yoy in the 2Q, compared with +5.4% in the 1Q and +2.8% in the 4Q of

last year (see Table 1). This was on account of a stronger growth in consumer

spending, which is estimated to have held up relatively well at 5.4% yoy in the 2Q,

faster than +5.1% recorded in the 1Q, amidst a drop in confidence and a slowdown

in job market. Indeed, consumption credit strengthened to 10.7% yoy at end-June,

from +9.5% at end-March and compared with +7.7% at end-2009, indicating that

consumers continued to borrow and spend. This was reflected in a pick-up in loans

extended for the purchase of houses and passenger cars as well for credit cards.

Similarly, sales tax collection fell by a smaller magnitude of 2.1% yoy in the 2Q,compared with -29.8% in the 1Q. However, there were signs of weakness in

consumer spending as reflected in a moderation in new car sales, which eased

to 16.5% yoy in the 2Q, from +22.0% in the 1Q. Similarly, the imports of

consumption goods slowed down to 13.2% yoy in the 2Q, from +18.5% in the 1Q,

while commodity prices moderated somewhat during the quarter. Also, service tax

collection slowed down to 12.5% yoy in the 2Q, from +22.2% in the 1Q. Meanwhile,

the Malaysian Institute of Economic Research’s (MIER) consumer sentiment index fell

to 110.4 in the 2Q, from 114.2 in the 1Q (see Chart 3). Despite the decline, the

index was still above the 100-mark, indicating that consumer confidence remained

intact even though they have turned slightly cautious.

The slowdown w as due to

s lower increases in the

exports of E&E and non-

E&E products

The expo r t s o f ma jo r

commod i t y p r oduc t s

p i cked up dur i ng t he

quarter

The exports of non-E&E

manufa c tu r ed goods

modera ted to +20.5%

yoy in the 2Q

Domes t i c demand i s

estimated to have grown

at a fas ter pace, on

account o f a res i l i ent

consumer spending

There were , however ,

s i gns o f weakness i n

consumer spending



ECONOMIC UPDATE4


2007 2008 2009 2009 2010 2010(f) 2011(f)

2Q 3Q 4Q 1Q 2Q(e)

% Growth in Real Terms

GDP 6.5 4.7 -1.7 -3.9 -1.2 4.4 10.1 8.1 6.8 5.0

Consumption:

Private 10.5 8.5 0.7 0.3 1.3 1.6 5.1 5.4 5.0 6.0

Public 6.6 10.7 3.1 1.5 9.4 0.7 6.3 1.8 -1.5 4.5

Total investment 9.4 0.7 -5.6 -9.6 -7.9 8.2 5.4 13.3 9.0 8.6

Private 13.1 1.0 -17.2 n.a n.a n.a n.a n.a 6.9 12.7

Public 5.3 0.5 8.0 n.a n.a n.a n.a n.a 10.8 4.9

Goods & services:

Exports 4.1 1.6 -10.4 -17.9 -12.9 6.0 19.3 12.6 11.4 7.9

Imports 5.9 2.2 -12.3 -19.4 -13.2 7.0 27.5 21.9 17.2 10.5

Agg.domestic demand 9.6 6.8 -0.5 -2.2 0.1 2.8 5.4 6.9 4.9 6.4

(f): RHBRI's forecasts (e): RHBRI’s estimates

Table 1GDP By Demand Aggregate (2000=100)

Chart 3Consumer Conf idence Turning Weaker

Index

0

20

40

60

80

100

120

140

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

MIER

In the same vein, private investment is estimated to have turned around and

recorded a positive growth in the 2Q even though business confidence has weakened

somewhat. As it stands, the imports of capital goods rebounded to +26.5% yoy in

the 2Q, from +9.6% in the 1Q and compared with +18.4% in the 4Q, suggesting that

businesses continued to spend, albeit cautiously. Similarly, corporate loan growth

strengthened in June, on the back of a pick-up in business loans which grew at a

faster pace of 7.2% yoy in June, compared with +4.3% in March. This was, however,

offset partially by a decline in loans extended for small- and medium-scale

enterprises (SMEs), which fell by 0.3% yoy in June, compared with +3.1% in March.

The pick-up in business loans was reflected in a pick-up in loans extended to

agriculture; manufacturing; wholesale, retail trade, hotel & restaurant; construction;

transport, storage & communication; finance, insurance & business; and education

& healthcare sectors.

Public investment, however, is estimated to have slowed down to 11.0% yoy in

the 2Q, from +11.9% in the 1Q, in line with a slowdown in the disbursement of

government funds. Nevertheless, fixed capital formation is estimated to have

grown at a faster pace of 13.3% yoy in the 2Q, compared with +5.4% in the 1Q,

due to a turnaround in private investment. The public consumption expenditure,

however, is estimated to have slowed down during the quarter, after a strong pick-

up in the previous quarter.

Pr iva te investment i s

estimated to have turned

around and recorded a

positive growth in the 2Q

Pub l i c i nves tment i s

estimated to have slowed

down but f i xed cap i ta l

f o rma t i on p i cked up

during the quarter



5ECONOMIC UPDATE


M ore M odera te I nc reases I n M anu factu r i ng And Se rv i ces Act i v i t i es

On the supply side, value added in the manufacturing sector is estimated to

have moderated to 15.2% yoy in the 2Q , from +16.9% in the 1Q and after

returning to a growth of 5.3% for the first time in a year in the 4Q (see Table 2).

As it stands, output of the export-oriented industries moderated to 17.4% yoy in

May, after reaching a high of +21.3% in March. This was on account of a moderation

in the production of E&E products; chemical; wood & wood products; rubberproducts; and paper, pulp & board products. These were made worse by a decline

in the production of textiles & apparels. These were, however, mitigated by a pick-

up in the production of petroleum products during the period. A pick-up in output

of domestic-oriented industries, which strengthened to 23.3% yoy in May, from

+18.2% in March, however, mitigated the slowdown. This was due to a pick-up in

the production of construction-related materials and beverages as well as a rebound

in the production of food.

Table 2GDP By Industr ial Origin At 2000 Prices

2007 2008 2009 2009 2010 2010(f) 2011(f)

2Q 3Q 4Q 1Q 2Qe% Growth in Real Terms

GDP 6.5 4.7 -1.7 -3.9 -1.2 4.4 10.1 8.1 6.8 5.0

Agriculture 1.3 4.3 0.4 0.4 -0.4 5.9 6.8 2.0 3.2 2.8

Mining 2.0 -2.4 -3.8 -3.5 -3.6 -2.8 2.1 2.5 2.1 2.0

Manufacturing 2.8 1.3 -9.4 -14.5 -8.6 5.0 16.9 15.2 11.2 8.0

Construction 7.3 4.2 5.8 4.5 7.9 9.3 8.7 6.8 4.8 2.8

Services 10.2 7.4 2.6 1.7 3.4 5.2 8.5 6.5 6.1 4.8

(f) : RHBRI's forecasts (e): RHBRI’s estimates

Similarly, the services sector is estimated to have grown at a more

moderate pace of 6.5% yoy in the 2Q, compared with +8.5% in the 1Q. This was

due to a slowdown in services activities in utilities, transport & storage, finance &

insurance, real estate & business and communications sub-sectors, in tandem with

a slower increase in trade activities. In the same vein, activities in accommodation

& restaurants sub-sector are likely to have weakened due to a slowdown in tourist

arrivals. Activities in the wholesale & retail trade sub-sector, however, are likely to

have held up relatively well during the quarter.

Also, construction activities are estimated to have moderated somewhat to

6.8% in the 2Q, from +8.7% in the 1Q and after hitting a 13-year high of +9.3%

in the 4Q, in line with a slower increase in the Government’s stimulus spending andhousing activities. As it stands, the issuance of new permits in selling houses and

housing approvals slowed down to 15.8% and 7.4% yoy respectively in the 2Q, from

the corresponding rates of +32.0% and +13.9% in the 1Q. Similarly, the renewal

of permits in selling houses fell by a larger magnitude of 22.6% yoy, compared with

-19.4% during the same period, indicating that construction activities in residential

housing segment have moderated somewhat.

In the same vein, agriculture output is estimated to have slowed down to 2.0%

yoy in the 2Q, from +6.8% in the 1Q, as palm oil production fell and growth in the

previous quarter was boosted by the low base effect. As a result, the production

of palm oil contracted by 0.4% yoy in the 2Q, compared with +1.9% in the 1Q and

+6.4% in the 4Q of last year. This was made worse by a slowdown in rubber output,which eased to 9.1% yoy in April-May, from +34.6% in the 1Q, while the production

of saw logs slipped into a contraction of 3.0% yoy, compared with +57.6% during

the same period. Similarly, the production of cocoa fell by a larger magnitude during

the quarter.

The manufacturing sector

growth i s es t imated to

have softened in the 2Q,

in line with a slowdown in

ou tpu t o f t he expo r t -

oriented industries

Serv i ces ac t iv i t i es a re

estimated to have grown

at a more moderate pace,

i n t andem w i t h a

s l owdown i n t r ade

activities

Ag r i cu l t u r e ou tpu t i s

estimated to have slowed

down due mainly to a drop

in palm oil production

Const ruct ion sector

g rowth modera t ed

somewhat on account of a

s l ower i nc r ea se i n

government spending



ECONOMIC UPDATE6


Mining output, however, is estimated to have picked up to 2.5% yoy in the 2Q,

from +2.1% in the 1Q. This was on the back of a stronger increase in LNG output,

which strengthened to 10.0% yoy in the 2Q, from +8.8% in the 1Q and +0.4% in

the 4Q. A larger drop in the production of crude oil, which fell by 3.1% yoy in the

2Q, compared with -2.5% in the 1Q, however, offset part of the gain.

Globa l Econom ic Grow th W i l l Li ke ly Modera t e I n The 2H

Going forward, the global economy is likely to slow down in 2H 2010 , as

worldwide stimulus spending dissipates and austerity measures in some European

countries to address fiscal deficit and debt problems begin to bite. This will likely

be compounded by the policy normalisation and tightening measures introduced in

some countries, particularly in Asia, that will likely slow down economic activities in

these countries. As it stands, signs of a slowdown in the global economy are

becoming more apparent. Indeed, global manufacturing and services activities

softened for the third consecutive month in July (see Chart 4). In the same vein,

the OECD composite leading indicator ’s 12-month rate of change has peaked in

March and it moderated for three consecutive months to 6.7% in June, from +8.3%

in May (see Chart 5), indicating that OECD economies are likely to ease in the

months ahead.

Chart 4Global Manufactur ing And Serv ices

Act iv i t ies Heading South

Index P M IServices

➤ ➤ ➤ ➤ ➤

P MIManufacturing

➤ ➤ ➤ ➤➤

30

35

40

45

50

55

60

65

05 06 07 08 09 10

Chart 5OECD Composite Leading

Indicator Points To Slower EconomicGrowth Ahead

% 12-mth annualised rate of change

-20

-15

-10

-5

0

5

10

15

20

25

30

00 01 02 03 04 05 06 07 08 09 10

Total OECD Japan US Euro area China

Despite the weakness, we do not expect the global economy to fall into a

double-dip even though there is a risk of a sharper-than-expected

slowdown, given that policy normalisation and tightening remain gradual. Also, the

US economic recovery is becoming more sustainable, as its recovery, which started

from the government stimulus and inventory rebuilding, has now spread to consumer

spending. In Europe, we expect the sovereign debt problems to be manageable

despite the lingering concerns, following the announcement of an emergency

stabilisation loan of €750bn and the €110bn rescue package for Greece. Indeed,

Spain, Portugal, Ireland and Greece have successfully sold their bonds since 13 July

and the results of the stress test also helped as well. Nonetheless, the austerity

drives in Europe will likely affect Malaysia’s exports to some extent given that 10.7%

of the country’s exports went straight to Europe. There would be indirect impact as

well since 13% of Malaysia’s exports go to China, and Europe is China’s largest

export market (accounting for 19.7% of its total exports). Furthermore, the ringgit

has appreciated by 7.8% year-to-date, the sharpest in the region. As a whole, we

expect the country’s real exports to slow down to 7.6% yoy in 2H 2010, from

+15.9% in the 1H, bringing the full-year growth to +11.4% compared with -10.4%

in 2009.

Min i ng ou tpu t bounced

back during the quarter

due to a stronger increase

in LNG output

The g l oba l economy i s

likely to slow down in the

2H

Despite the weakness, we

do not expect the global

economy to fa l l i n to a

double-dip even though

there i s a r i sk o f a

s ha r p e r - t ha n - exp e c t ed

slowdown

We expect the country’s

real exports to slow dow n

in the 2H 2010



7ECONOMIC UPDATE


In the US, the economy is showings signs of moderating, after recording a slower

annualised rate of +2.4% in the 2Q. As it stands, retail sales fell by 0.5% mom in

June, the second straight month of decline, while personal consumption expenditure

grew at the slowest pace in five months during the month (see Chart 6). Similarly,existing home sales declined for the second consecutive month in June and housing

starts fell to the lowest level in eight months in June. This suggests a renewed

weakness in the housing sector, after the expiration of the tax incentive in April and

its recovery will likely be slow in the months ahead. Also, private employers added

fewer workers to payrolls in May-July, compared with March-April, indicating that

employers have turned cautious as well. Elsewhere, manufacturing activities slowed

down for the third straight month in July, while services activities bounced back

during the month but was off the peak recorded in May (see Chart 7). As a whole,

the US economy is projected to grow at a more moderate pace of 2.8%

in 2H 2010, compared with +3.1% in the first half, bringing the full-year growth to

around +3.0%, a rebound from -2.4% in 2009.

Similarly, the austerity drives will likely hurt some of the countries such as Spain,

Portugal, Ireland and Greece in the Euroland. Still, Germany, which could leverage

on the weak euro to export, would provide some cushion. As it stands,

manufacturing and services activities in the region rebounded in July (see Chart 8),

after a slowdown in June, while business and consumer confidence improved

somewhat in July. These suggest that the Euroland economy will unlikely fall off

the cliff but the recovery will likely be slow in the months ahead. In the same vein,

the Japanese economy will likely slow down in the 2H of the year, on the back of

a slowdown in global demand for the country’s exports. As it stands, Japan’s exports

slowed down for the fourth consecutive month in June and unemployment is trending

up in recent months (see Chart 9).

Chart 8Euro land: Manufactur ing And Serv ices

Act iv i t ies Ho lding Up

IndexP M I

Services

30

35

40

45

50

55

60

65

05 06 07 08 09 10

PMI Manufacturing ➤ ➤ ➤ ➤ ➤

➤ ➤ ➤ ➤ ➤

Totalexports(LHS)

Chart 9Japan : Weaking Exports And Rising

Unemp loyment

% yoy % of labour force

-60

-40

-20

0

20

40

60

05 06 07 08 09 10

0

1

2

3

4

5

6Unemployment

rate(RHS)

➤ ➤ ➤ ➤ ➤

➤ ➤ ➤➤➤

Chart 6US : Consumer Spending Losing

Momentum But Wil l Likely Be Resi l ient

(Personal consumption expenditure)% annualised

-4

-3

-2

-1

0

1

2

3

4

5

2005 2006 2007 2008 2009 2010

Chart 7US : Manufacturing Activ it ies Slowing Down,While Services Holding Up But Off The Peak

Index

30

35

40

45

50

55

60

65

70

05 06 07 08 09 10

ISMManufacturing

➤ ➤ ➤ ➤ ➤

ISMServices

➤ ➤ ➤ ➤ ➤

The Euroland’s economic

recovery will likely be slow

and t he Japanese

economy will likely be hurt

by a slowdown in exports

The US economy i s

projected to grow at a

more moderate pace of

2.8% in 2H 2010



ECONOMIC UPDATE8


In China, manufacturing activities slowed down to the slowest pace in more than a

year in July, while industrial production headed south for the third straight month and

it eased to 13.7% yoy in June, indicating industrial activities are slowing down (see

Chart 10). Similarly, retail sales grew at the weakest pace of 18.3% in three months

in June and fixed-asset investment in urban areas slowed down to 25.5% yoy in

January-June, from the corresponding period of +33.6% in 2009. This suggests that

China’s domestic demand is moderating, in tandem with the government’s tightening

measures to cool down its property market. As a whole, the key economic indicatorssuggest that China’s economy is likely to slow down further in the 2H of the

year, after recording a more moderate growth of +10.3% yoy in the 2Q.

Meanwhile, demand for E&E products, which accounts for about 45% of Malaysia’s

total exports in 2009, will likely be softer in the 2H of the year , in line with a

slowdown in global economic activities. As it stands, worldwide semiconductor sales

eased to 42.6% yoy in June, from +48.6% in May and after reaching a high of +58.4% in March. This suggests that a sharp rebound in sales due to a spike-up

in demand and inventory rebuilding is normalising.

Real GDP Grow th To Sof t en I n The 2H

A softer export growth will likely translate into slower increases in jobs and

production, which will likely affect consumer spending and business investment as

well. As a result, we envisage domestic demand to ease to 3.8% yoy in 2H

2010, from +6.1% in the 1H , bringing the full-year growth to 4.9% in 2010, a

rebound from -0.5% in 2009. This will likely be reflected in a more moderate

increase in consumer spending, which is projected to grow at a slower pace of

4.7% yoy in the 2H versus +5.3% in the 1H. Already, consumer spending is showing

signs of weakness as reflected in a moderation in new car sales, the imports of

consumption goods and service tax collection in the 2Q. Also, the Malaysian Institute

of Economic Research’s (MIER) consumer sentiment index fell to 110.4 in the 2Q,

from 114.2 in the 1Q, indicating that consumers have turned cautious. Consumer

spending, however, will likely be resilient on the back of high savings and rising

consumerism. For the full-year, consumer spending, however, will likely bounce back

to +5.0% in 2010, from +0.7% in 2009.

Similarly, the private investment is projected to soften to 6.4% yoy in 2H 2010,

from +7.3% in the 1H, as businesses turn cautious when excess production capacity

builds up. As a result, businesses will not be in a hurry to invest and they would

delay their investment. As it stands, MIER’s business conditions index fell by 4.4

percentage points to 119.6 in the 2Q. In the same vein, public investment is

projected to expand at a slower pace of 10.2% yoy in the 2H of the year, compared

with +11.5% in the 1H, as the government stimulus spending fizzles out.

We env i sage domes t i c

demand t o ea se i n 2H

2010, on the back of a

s l owdown i n consumer

spending

The private investment is

projected to soften as well

in the 2H of the year

Demand for E&E products

will l ikely be softer in the

2H of the year, in line with

a s l owdown i n g l oba l

economic activities

The key economi c

ind i ca tors suggest tha t

China’s economy is likely

to soften in the 2H

Chart 10China : Industr ial Act iv it ies Slowing Down

Index% yoy

➤ ➤➤ ➤ ➤

I P I(LHS)

PMI mfg.(RHS)

0

5

1 0

1 5

2 0

2 5

0 5 0 6 0 7 0 8 0 9 1 0

0

1 0

2 0

3 0

4 0

5 0

6 0

7 0

➤ ➤➤ ➤ ➤



9ECONOMIC UPDATE


Consequently, we expect fixed capital formation to ease to 8.4% yoy in 2H 2010,

from +9.5% in the 1H, bringing the full-year growth to 9.0% during the year,

compared with -5.6% in 2009. Public consumption, on the other hand, will likely

contract by 5.4% yoy in the 2H of the year, compared with +4.0% in the 1H, on the

back of a fiscal consolidation. As a whole, the public sector expenditure will exert

a less expansionary impact on the economy. Still, we expect real GDP growth

to slow dow n to 4.5% yoy in 2H 2010, from +9.1% in the 1H. For the full-year,

real GDP will likely expand by 6.8% in 2010, a rebound from -1.7% in 2009.

We expec t r ea l GDP

growth to slow down to

4.5% yoy in 2H 2010, from

+9.1% in the 1H



RHB DEALING AND RESEARCH OFFICES

MALAYSIARHB Investment Bank BhdLevel 10, Tower One, RHB Centre,Jalan Tun Razak50400 Kuala LumpurP.O. Box 1269950786 Kuala Lumpur, Malaysia

Tel (General) : (603) 9285 2233

Dealing OfficeTel (Dealing) : (603) 9285 2288Fax (Dealing) : (603) 9284 7467

RHB Research Institute Sdn BhdLevel 10, Tower One, RHB Centre,Jalan Tun Razak50400 Kuala LumpurP.O. Box 1269950786 Kuala Lumpur, MalaysiaTel (Research) : (603) 9280 2160Fax (Research) : (603) 9284 8693

Lim Chee SingDirector

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation.Additional information on recommended securities, subject to the duties of confidentiality, will be made availableupon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI andRHBRI accepts no liability whatsoever for the actions of third parties in this respect.

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI andRHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under suchcircumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally availabledata believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by otherbusiness units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as anoffer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything statedherein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever againstRHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financialcircumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors.RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seekthe advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual

circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for anyloss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financingactivities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage,banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effecttransactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may beinvolved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding companyand the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/coveredby RHBRI in this report or in RHBRI’s previous reports.This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewedby, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investmentbanking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have

received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitivefactors and firm revenues.

◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆

economic update - resilient, but slowing economic growth - 12/08/2010

Documents