Bumpy ride ahead for Malaysia's economy

Economic growth likely to pick up towards year-end
PETALING
JAYA: All signs still point to a rather rough road ahead for the local
economy as leading indicators in the region continue to show weakness
in economic activity with economists expecting an improvement only
towards the end of the year.
The industrial production index
(IPI), which measures overall manufacturing activity and factory
output, would likely show year-on-year median growth again when the
data is released this week by the Statistics Department.
A Bloomberg survey shows a year-on-year IPI growth of 4.6% for May after a 3.2% expansion in April.
However,
most economists pointed out that this would be short-lived even though
the gauge continued to grow for a second month as external demand,
which rebounded with a 6.7% rise year-on-year in May after contracting
marginally two months in a row, remained volatile.
Oversea-Chinese Banking Corp Ltd economist Gundy Cahyadi told StarBiz that falling exports, especially from commodities, would only weigh on domestic demand.
He said it was unlikely that domestic demand would continue to prop up the economy over the next six months.
“The
Government is likely to continue being supportive, but without a
stronger pick-up in private spending/investment, we don't expect the
kind of strength that has been evidenced since late last year,” Gundy
said, adding that the relatively high fiscal deficit would be of
concern if the Government continued to pump-prime the economy.
He
said although there had been signs of further moderation in the global
economy with the International Monetary Fund set to downgrade the
global growth forecast again, the house's baseline scenario continued
to point towards a stronger pick-up in global growth towards the later
part of the year.
“The eurozone holds the main key to uncovering
what's ahead for the global economy. As it is, plenty of uncertainties
remain, but the conclusion to the recent European Union (EU) summit
(notwithstanding the lack of details) suggests the commitment that
leaders have on the EU project,” Gundy said.
He added that more
muddling through would be the case with poor economic growth in most
eurozone economies almost guaranteed for the rest of the year and into
2013.
CIMB Investment Bank Bhd
economic research head Lee Heng Guie expects the passage of growth to
be bumpy with clearer signs only emerging in the later of the year as
composite leading indices (CLIs) from the Organisation for Economic
Cooperation and Development (OECD) as well as of emerging Asian
economies continue to show weakness.
“The OECD's CLI fell 0.08
point in May (down 0.03 point in April), with the growth momentum
clearly waning in advanced economies: CLIs for the United States and
Japan decelerated for the fifth and fourth consecutive months
respectively, whilst for the UK and eurozone, for the third and second
months respectively,” he said in a research report.
Lee said
weakness was also detected in the major emerging economies of China and
India with CLI losses of 0.15 point and 0.18 point respectively in May.
Meanwhile,
UOB KayHian's research head Vincent Khoo sees growth slowing in the
second-half, reflecting a fall-off in exports to the Western world and
China as well as the waning effect of fiscal stimuli such as the RM500
aid and the civil service pay hikes.
while the composite CLI of
Asia's five largest economies has lost 0.12 point, although this was a
slight moderation from the 0.13-point decrease in April.
“Weakness
in the debt-battered eurozone, the United States and China has knock-on
effects on regional economies via trade channels. High-frequency data
such as purchasing managers' indices, industrial output and exports
have softened in recent months, pointing to fast-decelerating growth in
some core emerging economies,” he said.
Meanwhile, UOB KayHian's
research head Vincent Khoo sees growth slowing in the second-half,
reflecting a fall-off in exports to the Western world and China as well
as the waning effect of fiscal stimuli such as the RM500 aid and the
civil service pay hikes.
He said the slowdown would be at a
measured and gradual pace. “We predict second-half's downtrend to be
orderly and for downside to be limited,” Khoo said.
He added
that this reflected growing consensus view for election results to be
market-neutral, real gross domestic product growth of 4% to 5% driven
by still ample domestic stimuli as well good corporate earnings growth
visibility in 2012 at 9.9%.