PP 7767/09/2010(025354)

Malaysia
Economic Highlights
•
MARKET DATELINE

22 February 2010

Leading Index Moderated In December, But Recovery

Remains Intact

◆ The Leading Index, which provides an early signal of the direction that the economy is heading, eased to 0.5%
mom in December, from +1.0% in November and +2.4% in October. This was due to decreases in the number
of housing permits approved (-0.3%) and money supply (-0.6%), while industrial material price index stagnated
during the month after an increase in the previous month. These were, however, mitigated by a pick-up in trade
with eight major trading partners (+0.4%), ratio of price to unit labour cost in the manufacturing sector (+0.9%)
and the number of new companies registered (+0.1%) as well as an improvement in CPI for services and a smaller
decline in Bursa Malaysia Industrial index. As a result, the leading index’s six-month smoothed growth rate
moderated to 10.7% in December, from +11.3% in November (see Chart 1). Despite the moderation, growth
remained strong, indicating that the recovery of the Malaysian economy will likely be sustained in the
months ahead.

◆ The Coincident Index (CI), which is used to monitor the most recent state of the economy, fell by a smaller
magnitude of 0.3% mom in December, compared with -0.7% in November. This was attributed to a pick-up
in industrial production index (+0.3%), sales (+0.2%) and employment in the manufacturing sector (+0.3%). These
were, however, offset partially by declines in salaries & wages in manufacturing sector and contributions to the EPF,
while gross imports stagnated during the month. On a six-month smoothed rate basis, the index moderated
to 3.0% in December, from +3.5% in November and +4.8% in October. This was the third straight month
of increase, albeit at a slower pace, indicating that real GDP will likely return to a positive growth in the 4Q, after
recording a smaller contraction of 1.2% in the 3Q.

◆ The Lagging Index (Lag), which serves to confirm what had happened to the economy, strengthened to 4.4%
mom in December, from +0.5% in November. This was attributed to a pick-up in lending to the private sector
(+3.4%), EPF contribution defaulters (+0.8%; inverted) and the number of investment projects approved (+0.3%).

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

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 February 2010

Consequently, the six-month smoothed growth rate of the lagging index rebounded to increase by 7.0% in December,
the first increase in four months and from -1.2% in November.

◆ Overall, despite the moderation in the leading and coincident indices’ six-month smoothed rate of change, the
Malaysian economy will likely continue to expand in the months ahead. Indeed, we expect the economy
to bounce back to a growth of 3.2% yoy in the 4Q, and growth will likely strengthen to +4.5% in 2010. 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 activities continued to pick up and for the last six consecutive months up
to January, although services activities moderated somewhat during the month. Similarly, the OECD composite
leading indicator’s 12-month rate of change grew for the fourth straight month and at a faster pace of 8.3% in
December, compared with +6.1% 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 10
(RHS)

15 5

12-mth rate of change

6-mth rate of change

10 0

5 -5

Malaysia Leading index

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

-5 -15

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