• Global: Global growth continues to remain fragile, going by the continued weaknesses in PMI numbers, indecisive Fed rate hike and subdued commodity prices. Global factory PMI shrank to a 26-month low of 50.6 in Sep (Aug: 50.7) while services PMI fell to 53.3 (Aug: 54.6). Thus, we foresee rising downside risk to 2015 world growth forecast (HLIB: +3.4%; 2014: +3.4%) while the dimness is likely to stretch into 2016. The IMF has also revised lower its forecast for 2015 and 2016 to 3.1% and 3.6% respectively (-0.2ppt revision).
• US: Despite an upward revision in 2Q15 GDP, further deterioration in ISM data and bearish near-term view on China have heightened concerns about the US economic momentum in the near term. ISM manufacturing index plunged to a 28-month low of 50.2 in Sep (Aug: 51.1) while non-manufacturing index fell to 56.9 (Aug: 59.0). Following the Fed’s dovish statement on China which messed up its intended rate liftoff, we now expect it to materialise in Dec meeting, even though the probability of such hike has been eroded by recent subdued data.
• Euro Zone: The confidence on economic recovery has somewhat stunned by recent development (i.e. weak PMI figure and China weakness) since Aug. Manufacturing PMI lost traction to 52.0 in Sep (Aug: 52.3) while services index weakened to 53.7 (Aug: 54.4). That said, we believe that euro zone would able to sustain a marginal growth this year (HLIB: +0.8%) and next as the ECB had pledged to extend its QE programme beyond its planned conclusion in Sep 2016 should both economic and inflation outlook turn softer.
• Japan: Owing to the high exposure to the Chinese economy, the latest set of PMI results implied that Japan is yet to cement a firm recovery (HLIB: +0.8% in 2015). Factory PMI reversed course, falling to 51.0 in Sep after hitting a 7-month high of 51.7 in Aug. Similarly, services PMI cooled to 51.4 (Aug: 53.7). This, coupled with core inflation hovering near zero level, may prompt the BOJ to further expand its QE programme to resist the impact of rising global challenges on Japan’s economy.
• China: A slew of economic data including PMI readings revealed that China’s economy continues to remain fragile (HLIB: +6.8% in 2015), in spite of numerous easing measures. Manufacturing PMI stayed in the contraction territory for the second month in Sep (49.8; Aug: 49.7) amid steady services PMI (53.4). Notwithstanding signs of an extended slowdown in the Chinese economy, the PBOC still has plenty of room to ease policy again over the course of the year to prevent a hard landing.
• Implications on Malaysia: Malaysia’s exports are likely to struggle into next year due to grimmer global outlook, especially Malaysia’s top trading partners i.e. China and US. Lingering domestic issues (i.e. GST impact, political noises and MYR weakness) have also begun to dent local demand, affirmed by the 6 months of contraction in Nikkei’s PMI (48.3; Aug: 47.2). Hence, we retain our 2015 full-year GDP growth forecast of 5.0% (3Q estimate: +4.8% yoy) and end- 2015 OPR target at 3.25%.

Source: Hong Leong Investment Bank Research - 7 Oct 2015