PublicInvest Research

Author: PublicInvest   |   Latest post: Mon, 8 Mar 2021, 10:59 AM


Economic Update - November 2020 Malaysian Economic Indicators - Surprisingly Resilient

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Malaysia’s leading index (LI) was resilient in November, reflected by a YoY growth of 7.1% (October: 6.3%) that was surprisingly strong despite the Conditional Movement Control Order (CMCO) in several states. This is commendable considering the headwinds of COVID-19, which also indicates a positive growth trajectory for the quarter (LI 4Q average: 6.7%; 3Q: 7.9%). LI also rebounded on a MoM basis (November: 0.4%; October: -0.7%) despite a full month impact of the CMCO. The LI’s diffusion index slipped slightly however (November: 85.7), a deterioration against a broad-based jump in October (100.0).

There could be a downside risks to LI in December no thanks to the surging cases of COVID-19. The number of new COVID-19 cases that has remained elevated especially in key states like Selangor and Wilayah Persekutuan (KL) is a concern as it could push consumers to remain cautious and therefore limit their spending. This could potentially impact the LI’s main component adversely, like Housing Permits and Money Supply (M1). Nonetheless, steady climb in the LI signals that the economy is expected to remain on positive trajectory for the quarter.

Leading Index. LI components recorded favorable growth numbers on a MoM basis, led by Real Imports of Semi-Conductors Index which emerged as the largest contributor (+0.5%; October: 0.1%). Other notable contributors came from the Bursa Malaysia Industrial Index (0.3%; October: 0.3%) and Real Imports of Other Basic Precious & Other Non-Ferrous Metal (0.3%: October: - 0.4%) which suggest that imports could recover in the next few months. Other key indices like the Number of Housing Units Approved declined by 0.9% however (October: 0.2%), its first drop in the last few months amid strong COVID-19 headwinds that doused developers’ appetite to roll out new projects. Real Money Supply, the M1 Index, remained steady as seen in a stable growth of 0.2% which matched October’s numbers.

Coincident Index. Coincident Index (CI), which reflects the overall economic condition, performed favourably, reflected by a 0.4% jump on a MoM basis, a turnaround against October’s -1.1%. Growth was pulled up especially by Real Salaries and Wages, Manufacturing (+0.2%) and Total Employment, Manufacturing (+0.1%) consistent with the country’s resilient Manufacturing PMI trend. Both indexes are expected to perform favourably in next few months driven by 1) an improved version of MCO 2.0 which allows uninterrupted operations of the manufacturing sector and 2) steady external demand from China, which has seen manufacturing activity on an expansionary trend since April. On a yearly basis, growth improved slightly to -2.3% in November from -2.4% in October. The diffusion index for the CI remained steady (November: 100.0), continuing its broad-based jump since last month (October: 100).


Fourth quarter growth trajectory could eventually be softer-than-expected no thanks to restrictions as a result of the CMCO. This is further reflected in the slight pullback of the LI amid a slower average growth in October and November vis-à-vis 3Q. The elevated number of new COVID-19 cases could also push consumers and businesses to remain cautious amid economic uncertainty that could weigh on consumption and investment activities. We are cautious on the outlook however given the still unfolding COVID-19 cases which shows no sign of slowing down.

Source: PublicInvest Research - 25 Jan 2021

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