-  Recent economic data for Malaysia continues to suggest that the domestic economy has been backed by a healthy labour market condition. During the month of April, the labour force participation rate had increased by 0.9ppt MoM (or +1.1ppt YoY) to 66.4%. The increase was due to the addition of 137,200 persons (or +1.0% MoM) in the labour market, bringing it to a total of 13.52mil persons as well as a decline in the number of persons outside labour force by 212,500 persons (3.0%) to 6.83mil.

-  A significant rise of labour force was made up of those who were employed while unemployed persons had declined by 36,000 persons (or -8.2% MoM) to 403,600 persons in April. Thus, the unemployment rate dropped by 0.3ppt MoM (or unchanged YoY) to 3.0%.

-  Elsewhere, leading indicators point to a moderate expansion in 2Q and 3Q. The Leading Index (LI) accelerated by 0.8% MoM (or +3.9% YoY) to 117.4 points in April. In March, LI grew by 1.1% MoM (or 3.0% YoY). Two main components that accounted for the increase were Real Imports of Other Basic Precious & Other Non-ferrous Metal (+0.4% MoM) and Number of New Companies Registered (+0.3% MoM).

-  On the other hand, the Coincident Index (CI) was unchanged on a MoM basis (or +2.7% YoY) in April 2013. The major compositions of CI including Real Contributions to EPF (+0.2% MoM) and Industrial Production Index (+0.1% MoM) had advanced during the month. However, Real Salaries & Wages in Manufacturing Sector (-0.2% MoM) and Volume Index of Retail Trade (-0.1% MoM) had registered MoM contractions.

-  Overall, the level of Diffusion Index for both CI and LI had hovered above 50.0% level, signalling an expansion. While the Malaysian economy will continue to grow in 2013, protracted growth momentum in 3Q13 will probably be hindered by external prevailing predicaments.

-  Owing to challenges that persist on the external front, Malaysia is at risk especially in terms of the outflow of funds arising from the reversal of USD carry trades. On the flipside, a sooner than expected recovery of the US job market and pent-up consumer demand in the US could give a lift to regional exports.

-  Meanwhile, the improved economic conditions in the US and the boost in exports to the US will be offset by the forthcoming weaknesses due to the slowdown ahead in China. In particular, a disappointment in China’s economic policies and a pull-back in China’s domestic growth are likely to post downside risk to the global economy. Should growth in China fumbles; China’s trade counterparties will succumb to a retraction in terms of exports as well.

Source: AmeSecurities