- The Leading Index (LI), which monitors the economic performance in advance, showed a decrease of 0.4% MoM to 116.9 points in May 2014. The annual change of LI slowed to 0.5% in May from 0.9% in April.

- The MoM decline in LI was due to the decrease recorded in all components except Bursa Malaysia Industrial Index (0.2%) and Real Imports of Semi Conductors (0.1%).

- Elsewhere, the Coincident Index (CI) also dropped by 0.5% MoM in May 2014. The annual change of CI slowed to 1.4% as compared to 2.0% recorded in April 2014.

- The MoM contraction in CI was due to the decline in Real Contributions to EPF (-0.3%), Volume Index of Retail Trade (- 0.3%), and Capacity Utilisation in Manufacturing Sector (-0.2%).

- When compared to the previous month, the annual changes of LI and CI remained favourable though at a slower growth pace. The Malaysian economy will continue to expand moderately in the months ahead supported by the level of Diffusion Index for LI, which is above 50.0%.

- Despite that, labour market conditions remained healthy during the month of May. Labour force participation rate increased to 67.9% in May 2014 compared to 67.3% in April. In part, the number of people in the labour force had risen by 142,500 from a month ago (or +1.0% MoM).

- Meanwhile, overall unemployment rate remained unchanged at 2.9% in May compared to the previous month (or - 0.4ppt YoY). The number of unemployed registered a slight decline in May 2014 by 700 persons MoM to 406,500 persons.

- That said, tighter lending amid higher borrowing cost and stringent loan approvals will probably hamper domestic demand in 2H14. As discretionary income falls on the back of high inflation, concern has arisen over impaired loans and household debt. Note that Malaysia’s inflationary risk has been mainly cost-driven during 1H14.

- In the past, the rise in income had been higher compared to inflation. As such, Malaysians were able to cope with the rise in prices. Nevertheless, the increase in prices more than the growth in wages could potentially lead to a stronger pullback in demand going forward.

- Income growth in Malaysia was at an average of 7.2% in 2012 vs. 4.5% in 2009. On the other hand, inflation had advanced by 1.7% in 2012 and 0.6% in 2009.

- Based on the household income survey for 2012, the mean income for the bottom 40% of the income group (or a monthly household income of below RM3,000 per month) increased at a rate of 8.3% per annum between 2009 and 2012.

- Meanwhile, the mean income for the middle 40% (or households with a monthly income of between RM3,000 and RM6,999 per month) saw an increase of 7.7% per annum. The mean income for the top 20% (or a monthly household income of RM7,000 per month or more) had advanced by 6.6% annually between 2009 and 2012.

Source: AmeSecurities