PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

23 April 2010

Leading Index Eased In February, Pointing 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 0.5%
mom in February, the third consecutive month of decline and compared with -0.6% in January and -0.3% in
December. The smaller decline was due to a smaller drop in the number of housing permits approved (-0.1%) and
a pick-up in money supply (+0.9%) as well as an improvement in Bursa Malaysia Industrial index. These were,
however, offset partially by declines in trade with eight major trading partners (-0.1%), CPI for services (-0.1%;
inverted), industrial material price index (-0.1%), the ratio of price to unit labour cost in the manufacturing sector
(-0.8%) and the number of new companies registered (-0.3%) during the month. As a result, the leading index’s
six-month smoothed growth rate weakened to 5.2% in February, from +7.7% in January and a peak of
+12.9% in November (see Chart 1). This was the third straight month of easing, indicating that the economy will
likely grow at a more moderate pace in 2H 2010.

◆ Similarly, the Coincident Index (CI), which is used to monitor the most recent state of the economy, eased to
+1.1% mom in February, from +1.5% in January. This was on account of a slowdown in sales (+0.1%),
employment (+0.1%) and salaries & wages in the manufacturing sector (+0.6%) as well as a decline in industrial
production index (-0.4%). This suggests that industrial activities have begun to show some weakness, but its
recovery will unlikely be derailed. These were, however, mitigated by a pick-up in gross imports and contributions
to the EPF during the month. On a six-month smoothed rate basis, the CI index, however, grew at a faster
pace of 7.0% in February, compared with +5.6% in January and +3.1% in December. This was the strongest
growth in nealy six years, indicating that real GDP growth will likely pick up its momentum in 1Q 2010,
after returning to a positive growth of 4.5% yoy in the 4Q.

◆ The Lagging Index (Lag), which serves to confirm what had happened to the economy, moderated to 4.3% mom
in February, from +5.3% in January and compared with +4.4% in December. This was due to sharper declines in
the number of investment projects approved (-0.5%) and the number of new vechiles registered (-1.5%). These

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

Leading Index (LHS ) Y /Y (RHS )

* 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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 23 April 2010

were, however, mitigated by a pick-up in lending to the private sector and EPF contribution defaulters (inverted).
The six-month smoothed growth rate of the lagging index surged by 24.0% in February, after a gain of +17.2%
in January, confirming that real GDP growth will likely strengthen in 1Q 2010.

◆ Overall, the moderation in the leading index’s six-month smoothed rate of change suggests that economic activities
will likely slow down in 2H 2010. This is because the lower base effect and the Government’s stimulus spending
will likely fizzle out. As a result, 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 the global economy, which is gaining momentum, while prospects of a
sustainable global economic growth are improving. As it stands, global manufacturing and services activities have
been in expansion for the last eight consecutive months until March. Similarly, the OECD composite leading
indicator’s 12-month rate of change grew for the sixth straight month and at a faster pace of 10.1% in February,
compared with +9.3% in January and +7.8% in December (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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