Worst May Be Over For Malaysia...

On the Edge Financial Daily. Worst may be over for Malaysia, May's IPI slowest decline since November

• Worst may be over for Malaysia, May's IPI slowest decline since November
  Written by Joy Lee
  Thursday, 09 July 2009 23:43
  
  KUALA LUMPUR: Another sign has emerged that the worst may be over for the Malaysian economy with May's industrial output declining at the slowest pace since November last year and was gaining month-on-month (m-o-m) for three consecutive months to May.
  
  Although the industrial production index (IPI) in May had fallen 11.1% year-on-year (y-o-y), it had gained 1.6% from April.
  
  "We are quite optimistic about the IPI figures. It is in-line with our expectations and has been gaining for the third consecutive month now. The gain month-on-month shows that recovery is on-track and it has strengthened our assumptions that the worst is over," senior economist at AmResearch Manokaran Mottain told The Edge Financial Daily.
  
  According to the Statistics Department, the cumulative IPI for the period of January-May 2009 had declined 13.2% against the same period in 2008.
  
  The y-o-y drop in May's IPI was due to decreases in broad sectors such as manufacturing (15.2%), mining (3%) and electricity (2.1%).
  
  The Statistics Department said the 15.2% y-o-y decline in manufacturing output contracted due to decreases in the electrical and electronics products segment (down 31.9%); non-metallic mineral products, basic metal and fabricated metal products (down 17.3%); and petroleum, chemical, rubber and plastic products (down 4.2%).
  
  The 3% y-o-y decline in the mining sector was due to a decline in the index of crude oil (down 3.2%) and natural gas index (down 2.5%) while electricity output rose 3.9% from the previous month. Nonetheless, the mining sector had gained 2.4% from the previous month.
  
  Manokaran said the contraction in manufacturing was expected to further narrow moving forward as global chip sales, which mirror the performance of the overall economy, have rebounded for the third consecutive month towards May.
  
  In a recent report, the Semiconductor Industry Association said worldwide sales of semiconductors rose to US$16.5 billion (RM58.74 billion) in May, an increase of 5.4% from April when sales were US$15.6 billion.
  
  "Other than that, labour deterioration worldwide has stabilised and global PMI (purchasing managers index) and consumer confidence have returned. Major economies have rebounded in their PMIs," Manokaran said.
  
  Other countries in the region have also shown a rebound in industrial outputs in recent months.
  
  China's industrial output rose 8.9% y-o-y in May, rebounding from April's lacklustre 7.3% and exceeding March's 8.3%. Japan, the world's second-biggest economy, saw its industrial output rose for the third straight month. It increased 5.9% y-o-y in May, matching a rise in April. As for India, its industrial output in May is likely to increase 1.3% y-o-y, according to estimates.
  
  Closer to home, Singapore's industrial production rose 2% year-on-year in May but fell a seasonally adjusted 1.6% from April.
  
  The smaller contraction in IPI spells good news for the Malaysian economy and Manokaran expected better gross domestic product (GDP) figures for the second half (2H) of the year.
  
  "The first quarter GDP declined 6.2%, which was a ten-year low. We are expecting about -4% for 2Q or maybe even better. There would be further improvement in the third quarter and subsequently a positive fourth quarter," he said.
  
  However, Azrul Azwar Ahmad Tajudin, senior economist at Bank Islam Malaysia, said it was not time to celebrate as the IPI has seen a double-digit plunge for six months in a row now.
  
  "It has eased somewhat. But combined with the sharp dip in exports, the magnitude of GDP contraction in 2Q may cast doubt over the timing and strength of the recovery which is widely expected to resume by year-end or the beginning of 2010," Azrul said.
  
  He said the worst may be over but there could be many pitfalls ahead for recovery to take place, adding that optimism over "green shoots" a few months back may have been tampered with recent dismal data.
  
  "What we are seeing now is the impact of the financial crisis on the economy. But the full impact of the mounting job losses on the economy has yet to be seen.
  
  "If job losses remain, we may see another round of negative impact on the economy. We may only see earnest recovery in the middle of next year," he said.
  
  Azrul said other indicators to look out for were the global job indicators and production figures in industrialised economies as these are the key export markets for Malaysia.

Hmmm..... let me borrow Warren Buffett's phrase "We are not in a freefall, but we are not in a recovery either."

That would be rather accurate, no?

But then what about the continued weakneess in the Ringgit?

And what about the weakening commodity prices?