Economic Update - Trade and IPI look rosy, 1Q growth between 4.5% and 5% maintained

- Amid the ongoing uncertainties in the global economy, especially in regard to the Eurozone debt crisis, Malaysia is expected to sustain a decent growth in the first quarter of 2012. This was supported by the better-than-expected performance of trade and manufacturing activities in February.

- While the improvements in both trade and production numbers could be attributed to improvements in the global environment, another major factor could be due to the seasonal base effect in the first two months of 2012.

- As expected, Malaysia’s industrial production growth rebounded faster by a 20-month high of 7.5% YoY in February versus a revised growth of 0.3% recorded in January.

- The large growth came as a surprise for the market, as it came in very much higher than the consensus estimate of +5% YoY (Source: Bloomberg Poll), as well as our view of 6.5% YoY.

- The expansion in IPI was due to the steep rise in manufacturing activities (+9.4% YoY) as well as a marginal yet significant expansion in the mining sector (+1.9%). Similarly, the electricity sector had also recorded a double-digit growth for the first time since May 2010 with an expansion of 11.3% YoY in February.

- With manufacturing having the highest weightage (64% of IPI), the expansion in the IPI numbers was largely attributed to faster growth rates recorded in petroleum, chemical, rubber and plastic products, the largest components of manufacturing (23% of IPI). In this regard, growth in this sub-sector expanded by 8.9% YoY, compared with the +3.1% YoY growth recorded in January.

- Similar to the IPI numbers, exports also accelerated to a 4-month high of 14.5% in February, on the back of improvement in the external front.

- While the growth rate came in marginally higher than our house estimate of 14%, it was lower than the market forecast of 15.3% YoY (source: Bloomberg poll).

- Imports, however, continued to outpace exports for the fourth straight month, as growth accelerated to 18.0% YoY in February (+3.3% in January).

- E&E exports, which accounts for an estimated 32.7% share of total exports, expanded by 7.8%YoY in February, rebounding from a contraction of 5.5%YoY in the preceding month. This was in line with the production data, which showed a sharp expansion of 8.1% YoY in February versus a contraction of 4.2% recorded in January.

- We are encouraged by the data, as it came in within our expectations and continue to point that the worst may have been over. In line with the general improvement in the external conditions, we continue to remain optimistic that Malaysian  economy would surprise on the upside this year.

- Nonetheless, we maintain our 1Q12 GDP estimate within a range of 4.5% and 5% due to seasonal fluctuation in this quarter. This is not a cause for concern at all, as it is still near to the trend-wise growth of 5%.

- For the remainder of the year, however, we expect GDP growth to improve thereafter, even rebound sharply to near 6% by 2H12, which would give us an average annual growth rate of 5% this year.

- Apart from a strong domestic demand, we also anticipate some stability in the Eurozone economies by the end of the year, a stronger US economy in the coming quarters, as well the further roll-out of major ETP projects in the coming months. In addition, the moderating inflationary pressures would also be positive for the domestic economy in 2012.

Source: AmeSecurities