- Production for the
month of July saw a 1.4% YoY expansion, faring below market expectations for a
3.0% increase. This is the result of a worse than expected decline in the
mining output plus a slight dip in monthly manufacturing output. Compared to
the previous month, production fell by 1.6% whilst the 3-month moving average
(3mma), a method used to remove seasonal factors, increased by 4.3%.
Year-todate, the IPI averaged at 3.7% growth, a leap from 0.2% in the same period in 2011.
- The pace of the
manufacturing sector’s growth production expanded by 5.5% YoY from 4.8%
previously. Compared to the previous month however, there was a 0.8% decline in
production. This is due to a lower base in 2011 but production as the year
progresses seems to be on a downward
slope. The 5.7% 3mma however keeps hope that manufacturing is remaining steady
and that the slight slump may simply be due to seasonal factors. The production
of E&E manufacturing grew 1.9% YoY from 1.7% previously but declined by
2.1% compared to the previous month. Growth of commodity-based manufacturing continues
to improve; petroleum, chemical, rubber & plastic products grew by 9.9%. It
is also good to note that transport equipment and other manufactures production
grew by 17.5%, which falls well in line with the most recent 34.4% of capital
import growth. This further reiterates the strength of domestic investment and
expansion.
- Production from the
mining sector fell by 10.4% YoY and 5.1% in comparison to the previous month.
This is due to a large fall in LNG production
(-25.2%) as demand from Japan tapered off in July. However, we believe that it
is a short dip as Japan is still relying on alternative fuels to substitute
nuclear energy and has indicated to remain
so in the near future. The crude oil index also fell in July, by 3.3%.
- Moderation in the
production of manufacturing and a fall in the mining equated to the electricity
output to moderate to 2.8% YoY from 5.9% previously.
- Western economies are
trapped in a quagmire of not just debt,
but consumer’s reluctance to spend (US consumer borrowing dropped by $3.3b
whence economist were projecting a $9.2b rise) – the very thing needed to boost
a sluggish economy.
- Asian economies are
feeling the brunt of their dependency on western clients. South Korea plans to
inject $5b into the economy to buffer the fall in exports, as China’s imports
declined 2.6% and exports gaining only 2.7%. The Chinese government has been
struggling to implement policies to boost the economy but the coupled with losing cost advantage due to higher prices
and spillover effect of the troubles in Europe is giving the communist party a
difficult time.
- Even though Malaysia
has shown resilience against the troubles plaguing the global economy, the
country cannot afford to be complacent. Despite much domestic investment
expansion spearheaded by the ETP, huge bulks of manufacturers are still dependent
on demand from overseas. For now our GDP
forecast for 2012 stays at 5.0% but unless some recovery rises, 2013 onwards
may not fare as well.
Source: Kenanga
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