• Global: Global PMI readings remained mixed in May given looming downside risks to 2015 global growth (i.e. gloomier China outlook, Grexit, volatile forex movement and geopolitical tensions). Global factory PMI notched up to 51.2 in May after hitting 21-month low of 51.0 in the preceding month. Meanwhile, global services PMI decreased to 54.1 (Apr: 54.8). The increasing divergence in monetary policy among major economies would continue to have impact on global fund flows and world economic activity.
• US: The US economy continued to struggle after 1Q transitory weakness (i.e. severe winter and port strikes). ISM manufacturing index edged up to 52.8 (Apr: 51.5) while the services index shrank to a 13-month low of 55.7 (Apr: 57.8). Domestic demand was broadly the growth driver while external trade remained a drag on growth as strong US$ hindered exports and lifted imports. Although we expect the Fed to hike interest rate in October, the timeline could be pushed to 2Q16 if the recent pick-up in economic data falters over next few months.
• Euro Zone: The euro area’s economy seems to have lost some momentum (EC forecast: +1.5% for 2015) as effect of ECB QE was overshadowed by fear of Grexit. Euro zone PMI performance was mixed, with factory PMI inching up to 52.2 in May (Apr: 52.0) while services PMI dipping to 53.8 (Apr: 54.1). Economic growth continues to premise on (i) the ECB’s QE of €60bn/month that has made Euro weaker and bank lending easier, as well as (ii) lower energy prices, boosting exports and private sector spending.
• Japan: The marginal rise in latest PMI figures coupled with recent data improvement (i.e. retail sales & real wages) are indications of a resilient economic recovery. Manufacturing PMI returned above the 50-threshold in May (50.9; Apr: 49.9) while services PMI picked up to 51.5 (Apr: 51.3). With inflation remains stubbornly below the BOJ’s target of 2.0%, odds are that QE will be expanded and which would most likely to take place in 2H15.
• China: Weak PMI readings suggested that China is st ill struggling to avoid a persistent downturn and more policy easing can be expected ahead. Despite a small uptick in the factory PMI (50.2; Apr: 50.1), services PMI slipped for third month to 53.2 (Apr: 53.4), the lowest level since Jan 2009. We, therefore, continue to see downside risks to our 7% growth forecast for China this year.
• Implications on Malaysia: We maintain our modest outlook for exports given (i) moderating growth momentum in China and US; and (ii) low global commodity prices which will persistently hurt commodity export earnings despite buffer from weaker MYR. As such, net trade would remain a drag on 2015 GDP growth amid a modest domestic demand, supported by stable labour market conditions and ongoing construction activities. Full-year GDP is projected to grow by 5.0% this year, within BNM’s targeted range (4.5%-5.5%). Alongside with stable consumer prices and abated financial imbalances, we see no impetus for BMM to change its OPR at 3.25% for the rest of the year.

Source: Hong Leong Investment Bank Research - 9 Jun 2015