Economic growth momentum slowed down in May

by ANIS HAZIM / pic by BLOOMBERG

MALAYSIA’S Leading Index (LI) slowed further to 6.9% year-on-year (YoY) in May 2021 due to tight movement restrictions that affected businesses. 

The April LI marked the slowest economic growth since October last year, according to MIDF Amanah Investment Bank Bhd (MIDF Research). 

MIDF Research said the moderation in the YoY growth mainly reflects the sequential declines as LI recorded a sharper monthly drop of 2.9% month-on-month (MoM) in May 2021 from 1.2% MoM in the previous month. 

“Businesses concerned that the near-term outlook will be weak, as shown by the reduced real imports of other basic previous and non-ferrous metals (1.2% MoM), lower expected manufacturing sales (1% MoM) and fall in Bursa Industrial Index (0.1% MoM),” the investment bank wrote in a report yesterday. 

Other data also pointed to slowing activities, namely less number of housing units approved (0.3% MoM), further fall in company registration (0.2% MoM) and negative growth in real money supply (0.1% MoM). 

MIDF Research noted the weakness in the current economic condition also led to softer expansion in the Coincident Index (CI), which rose by 10% YoY from 20.2% YoY due to reduction in retail sales and industrial production and lower capacity utilisation in the manufacturing sector. 

“Based on the trend in LI and CI, we foresee growth momentum to be weak in the middle of the year because of the imposition of full lockdown. 

“The data showed businesses already reduced their imports of materials in anticipation of weaker demand conditions in the near term,” MIDF Research noted. 

However, it believes the momentum would pick up as more states move into the next phase of the National Recovery Plan and when restrictions on the economy are gradually lifted, subject to the improvement in the public health condition. 

MIDF Research has projected a weaker export performance following the decline in Malaysia’s manufacturing Purchasing Managers’ Index to 39.9 during the month. 

MIDF Research assumed the negative impact on business activities from the full nationwide lockdown will also affect the exports performance. 

“The manufacturing sector recorded the highest rise in the Producer Price Index (PPI) since May 2017 due to rising prices of primary and construction-related commodities. 

With PPI inflation remaining high, MIDF Research expects the rising costs of production would continue to feed into rising inflation as suppliers pass some of the cost increases to consumers. 

Furthermore, it said the high level of oil prices explains the cost-push inflation while the supply constraints would continue to affect the inflation outlook. 

Meanwhile, IHS Markit Ltd noted Malaysia’s manufacturing sector continued to be badly hit by the ongoing pandemic in July. 

“Production fell sharply for a second successive month as the recent rise in infections and containment measures associated with the Delta variant both dampened demand and disrupted supply chains,” IHS Markit chief business economist 

Chris Williamson said in a statement yesterday. 

He said both domestic demand and export orders fell sharply at the start of the third quarter, while supplier delays continued to develop at one of the fastest rates yet recorded by the IHS Markit’s survey. 

The survey collected responses from 400 purchasing managers of manufacturers in detailed sectors and company workforce size based on GDP contributions. 

Williamson said there is better news in terms of the outlook, however, with companies becoming more optimistic after the rise of the Delta variant had pushed confidence in June to its lowest on record. 

He stated more companies are now seeing some light at the end of the tunnel, and employment consequently stabilised. 

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