Strong growth projected for M'sia

By JAGDEV SINGH SIDHU
jagdev@thestar.com.my

Economists stick to full-year projections despite H2 slowdown expected
KUALA LUMPUR: The slowdown in economic data pointing to a cooling of the economy has some economists worried but many are sticking to earlier projections of strong full-year growth on the strength of the first-half numbers.
Economists said expectations of an economic slowdown in the second half of the year was anticipated but say the dip in export, industrial production and the health of the global economy adds to worries that next year would be more difficult to read.
“The stimulus packages and the huge low-base effect contributed to the strong first half but the picture globally is not pretty,” said an economist.
He said any slowdown would not lead to a recession this year given the momentum that had been built on so far but said next year’s performance, which would see slower economic growth, would be more worrisome.
The economy grew by 10.1% in the first quarter and 8.9% in the second quarter.
Uneasiness has cropped up after recent data came in on the soft side.
Export growth for August was 10.6% which was the fifth consecutive month of slower external trade and industrial production for growth for August was 4% after dipping to 3.4% after a reading of 9.3% in June.
Economists attribute the fasting month for the declines in export and also industrial production and believe a pick-up in September is imminent given the low-base effect from last year.
“Because of the low-base effect, the IPI for September could come in between 6% and 7%,” said an economist.
Economists had said external trade globally was sluggish given the direction leading indicators were pointing.
“Based on latest consensus forecast and our in-house calculations, the global economy is expected to average 3.7% year-on-year in the second half of 2010 after growing by 4.5% year-on-year in the first quarter of 2010 and 4.8% year-on-year in the second quarter of 2010,” said Maybank Investment Bank in a report recently.
While the general belief is that China would remain a locomotive for Asia, Malaysia’s export growth to China was a meagre 2.4% in August, causing some to wonder if that is a one-time blip. But the export growth rates to South-East Asia too have slowed in recent months and showed growth of 5.6% in August.
Working against exports has been the ringgit’s steep appreciation against the dollar this year which Maybank noted that apart from Malaysia, countries such as South Korea, Japan and Thailand were showing a significant slowdown in exports in recent months as their currencies gain strength.
Another insight to the health of the global economy is the appetite for companies to consume goods.
Global purchasing managers indices are still on the health side of 50 – anything below would mean a contract and a reading above 50 would mean expansion – but the global average has been falling over the past three months.
In Asia, the Purchasing Managers’ Index (PMI) for China shows an expansion with the index reading of 53.8 for September but in other parts of Asia where external trade is a big component of growth, the index reading is below 50.
Those countries with a reading below 50 are South Korea, Taiwan, Japan and Singapore.
“Softening PMI numbers alongside index of leading economic indicators also support the view that growth will be slower in the second half of this year,” said Maybank Investment Bank in a report.
An economist said a slight drop below a reading of 50 would not cause much stress but a reading in the mid-40 region would.
“The global PMI is a good indicator of trade,” said the economist.
While many are hoping that the last couple of months of economic data would not be a reflection of things to come, the message though has been clear.
“Going into 2011, very few people know what the outcome will be. It’s still uncertain.” said an economist.