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NEWS UPDATES Asean Affairs        13  June 2011

Malaysian GDP may drop

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Economists may have to revise their full-year gross domestic product (GDP) growth expectations for Malaysia to reflect the lower output stemming from lower demand from abroad.

The harbinger was April's industrial production index (IPI) which was released by the Statistics Department on Thursday.

The IPI unexpectedly contracted 2.2 percent from a year ago while, on a month-on-month basis, the IPI contracted by 7.6 percent.

The surprise drop in the IPI, which measures factory output and therefore of the manufacturing sector's performance, was not reflected by projections given by economists in a survey, which forecast a median 2.5 percent expansion.

While economists are still sticking to their forecasts for the country's full-year GDP to expand by around 5.5 percent, slower growth in the manufacturing sector, which makes up 27.6% of GDP, would weigh on overall growth.

CIMB Investment Bank Bhd economic research head Lee Heng Guie said in a report dated June 9 that the soft patch in the manufacturing sector would weigh on second quarter GDP growth, estimated to expand 4 percent to 4.5 percent.

“We expect overall industrial output to show uneven growth in the months ahead, partly because of disruptions in the production chain. In addition, the easing of global purchasing managers' index readings may presage slow-moving momentum for industrial output and exports in the second quarter to the third quarter,” he added.

However, Lee said, domestic non-tradable sectors, namely the services and construction sectors, should continue to keep the economy rolling along decently.

“Domestic demand should still call the shots, supported by the stepping up of private investment growth under the Economic Transformation Programme (ETP). As such, we maintain our GDP growth estimate of 5.5 percent for this year and 6.0 percent for 2012,” he said, adding that industrial output growth estimate of 3 percent to 4 percent this year was maintained.

Meanwhile, AmResearch Sdn Bhd senior economist Manokaran Mottain said the April IPI data pointed to slower economic growth in the second quarter.

“Our initial analysis suggests a slower growth in the second quarter, which may catch investors by surprise,” he said.

“Nonetheless, we await another month of data before coming to a more definitive conclusion, though things are generally pointing southwards,” he said.

Manokaran said restocking would most likely take place either at the tail-end of the third quarter or the fourth quarter of the year.

“For the full year, we reaffirm our stance, subject to a possible review of our GDP growth forecast, with downside risks from the global environment overshadowing the positive impact from the impending implementation of ETP and 10th Malaysia Plan projects in the second half of this year,” he said.

Manokaran said external headwinds could mean a possible 0.3% being shaved off the full-year GDP forecast.

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