PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

22 March 2010

Leading Index Eased In January, Points To A More

Moderate Economic Growth In 2H 2010

◆ The Leading Index, which provides an early signal of the direction that the economy is heading, fell by a larger
magnitude of 0.6% mom in January, compared with -0.3% in December. This was on account of sharper
declines in Bursa Malaysia Industrial index (-0.2%) and the number of housing permits approved (-0.7%) as well
as a slowdown in trade with eight major trading partners (+0.1%) and ratio of price to unit labour cost in the
manufacturing sector (+0.2%). These were, however, mitigated by a smaller decline in money supply and a pick-
up in industrial material price index and CPI for services. The number of new companies registered, on the other
hand, stagnated during the month after an increase in the previous month. As a result, the leading index’s six-
month smoothed growth rate moderated to 7.7% in January, from +10.6% in December (see Chart 1). This
was the second straight month of easing after reaching a peak in November, indicating that the economy will
likely grow at a more moderate pace in 2H 2010.

◆ The Coincident Index (CI), which is used to monitor the most recent state of the economy, however, rose by
1.4% mom in January, a rebound from -0.2% in December. This was underpinned by a pick-up in industrial
production index (+0.6%) and sales in the manufacturing sector (+0.4%) as well as an increase in salaries & wages
in the manufacturing sector (+0.8%), a rebound from a decline in the previous month. These were, however, offset
partially by a decline in gross imports and contributions to the EPF, while employment in the manufacturing sector
remained stable. On a six-month smoothed rate basis, the index grew at a faster pace of 5.4% in January,
compared with +3.1% in December. This was the strongest growth in more than 3 years, indicating that real
GDP growth will likely pick up its momentum in 1Q 2010, after returning to a positive growth of 4.5% in the
4Q.

◆ The Lagging Index (Lag), which serves to confirm what had happened to the economy, moderated slightly to
4.3% mom in January, from +4.4% in December. This was attributed to declines and the number of investment

Chart 1
Leading Index

Index Growth rate*

20
160
140 15
120
100 10
80
5
60
40
0
20
0 -5
00 01 02 03 04 05 06 07 08 09 10

L e a d in g In d e x (L H S ) Y / Y (R H S )

* Growth rates are expressed as compound annual rates based on the ratio of the current month’s
index to the average index during the preceeding 12 month

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 22 March 2010

projects approved (-0.6%), EPF contribution defaulters (-0.9%; inverted) and the number of new vechiles registered
(-0.8%). These were, however, mitigated by a pick-up in lending to the private sector. The six-month smoothed
growth rate of the lagging index strengthened, however, to 15.1% in January, from +7.0% in December.

◆ Overall, the moderation in the leading index’s six-month smoothed rate of change suggests that the economy will
likely grow at a more moderate pace in 2H 2010. Indeed, we expect the economy to ease to around 3.8%
yoy in the second half of the year, from +5.2% in the 1H. For the full-year, real GDP will likely expand by 4.5%
in 2010, a rebound from -1.7%. This is in tandem with a recovery in global economy, which is gaining momentum,
amidst challenges such as threats of inflation and asset price inflation emanating from low interest rate environment,
particularly in Asia and emerging economies, and concerns over a double-dip in the recovery of the global economy
as government spending fizzles out. As it stands, global manufacturing and services activities are still expanding
and for the last seven consecutive months up to February. Similarly, the OECD composite leading indicator’s 12-
month rate of change grew for the fifth straight month and at a faster pace of 9.6% in January, compared with
+8.1% in December and +6.0% in November (see Chart 2), pointing to an improvement in OECD economic outlook.

Chart 2
Malaysia Leading Index vs OECD
OECD Composite
20 Leading Index 15
(RHS)
10
15

12-mth rate of change

6-mth rate of change

5
10

5
-5
Malaysia Leading index
0
(LHS)
-10
00 01 02 03 04 05 06 07 08 09 10

-5 -15

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