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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 23 Oct 2020, 9:35 AM

 

July 2020 Malaysian Economic Indicators - Rising Further

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OVERVIEW

Malaysia’s leading index (LI) showed an upbeat trend in July, expanding by 7.7% YoY (June: 4.6%) which is its multi-year high and indicates that the economy is recovering steadily from the shock of COVID-19. The LI rose further by 4.4% on a MoM basis from 3.8% in June 2020. The LI’s diffusion index also showed encouraging momentum after hitting 57.1-level (June: 42.9) on the back of encouraging expansion for most sub-indices. The rebound in LI shows encouraging signs that the economy picking up as the index is a combination of selected economic indicators that provide advance signals in economic direction.

The decision to re-open the economy since June is widely credited to an improvement in the engine of growth, a stark contrast against LI’s year low of - 5.7% in April which took place during the height of business closures. Economic activity is expected to accelerate in the near term propelled by massive government stimulus packages and the accommodative interest rate environment. The re-opening of ASEAN’s economies may also contribute positively to the normalization of supply chain in the region, especially manufacturing products and therefore, the macroeconomic momentum. The steady climb of the LI signals that the economy is expected to remain in a positive trajectory in the next two quarters.

Leading Index. There was a broad advancement of the LI components for the month led by Bursa Malaysia Industrial Index which emerged as the largest contributor (+1.8%) with the exception of Sales, Manufacturing (-0.1%) amid the interruption in supply chain post-MCO. The sub-index could have remained positive if not for the economic struggles in advanced economies (AEs) which remained troubled by the steady rise in new COVID-19 cases. Other notable contributor for the LI came from Real Money Supply (+0.5%), Real Imports of Semiconductor (+0.3%), Real Imports of Other Basic Precious and Other NonFerrous Metal (+0.7%) and Number of New Companies Registered (+1.0%). The Number of Residential Units Approved delivered another steady performance for the month, inching higher by 1.0% YoY, its third consecutive month of expansion (June: +1.5%; May: +1.9%). The LI’s Diffusion Index also signals a healthy momentum amid a jump to 57.1 from 42.9 in June.

Coincident Index. Coincident Index (CI) which reflects the overall economic condition also performed steadily, reflected by the 1.3% gain on a MoM basis though this is a slowdown against June’s +8.7% with growth primarily driven by Volume Index of Retail Trade (+1.3%) amid consumption that was supported, among others, by generous fiscal targeted transfer (Bantuan Sara Hidup). On a yearly basis, the CI improved further to -2.4% in July from -3.1% in June. The diffusion index for CI also showed encouraging momentum amid the month’s achievement of 16.7, its best in the last four months. This is an improvement against the year’s low in April, May and June consistent with an economy that slipped into a sharp decline in 2Q20 (-17.1%).

OUTLOOK

The encouraging economic indicators signal that the economy is on the right track to recover especially after the steep decline in 2Q. This is consistent with our expectation that the economy may rebound in 3Q before accelerating further in the 4Q. The economy is projected to turnaround in 2021 (+4.9%) driven, among others, by the expected containment of COVID-19 and the extended period of accommodative interest rates. All this will boost overall sentiment, further driving macroeconomic potential.

Source: PublicInvest Research - 24 Sept 2020

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