Docstoc

Slower GDP Growth In The 3Q_

Document Sample
Slower GDP Growth In The 3Q_ Powered By Docstoc
					                                MARKET DATELINE
   • PP 7767/09/2012(030475)




                                                                                                                          8 November 2012
Malaysia




                                                  Economic Update


                                                  Slower GDP Growth In The 3Q, But Prospests Likely
                                                  To Improve In 2013




                                                  Executive Summary
                                                  Reflecting weakening external demand for the country’s exports, the Malaysian real GDP
                                                  growth is estimated to have slackened to 4.8% yoy in the 3Q, after a pick-up to +5.4%
                                                  in the 2Q. The weakness in exports was attributed to the protracted euro-debt crisis
                                                  and made worse by a slowdown in emerging economies. Domestic demand is likely to
                                                  have sustained at a relatively strong pace of growth in the 3Q, albeit at a more
                                                  moderate increase, supported by a sustained increase in private investment, while
                                                  consumer spending remained resilient during the quarter.

                                                  Growth in real exports is estimated to have slowed down to 0.9% yoy in the 3Q, after
                                                  expanding at a more moderate pace of +2.1% in the 2Q, on the back of a weakening
                                                  global economy. Domestic demand, on the other hand, is estimated to have remained
                                                  resilient and strong, underpinned by a sustained increase in consumer and business
                                                  spending. Growth is envisaged to have expanded by 10.2% yoy in the 3Q, albeit at
                                                  a more moderate pace than +13.8% recorded in the 2Q.

                                                  Growth in the manufacturing sector slowed down more sharply, while services activities
                                                  moderated during the quarter, in line with weaker exports and a moderation in domestic
                                                  demand. Similarly, construction value added eased in the 3Q, after a sharp increase
                                                  in the previous quarter, while mining production fell. These were, however, mitigated
                                                  by a pick-up in agriculture output during the quarter.

                                                  Going forward, we expect global economic uncertainties to gradually clear out as time
                                                  progresses. This will likely provide a lift to the country’s exports in 2013, albeit from
                                                  a low base, after a slowdown in 2012.

                                                  The implementation of the ETP, PPP and various economic corridor projects will likely
                                                  sustain the country’s domestic demand and economic growth in 2013. This will likely
                                                  be reinforced by the Government’s allocations in the 2013 Budget to accelerate the
                                                  implementation of these economic programmes and ease people’s financial burden. As
                                                  a whole, we expect real GDP to expand at a slightly faster pace of 5.4% in 2013,
                                                  compared with +5.0% estimated for 2012.

                                                                                                                      Peck Boon Soon
                               Please read important disclosures at the end of this report.                          (603) 9280 2163
                                                                                                                    bspeck@rhb.com.my


  A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download
  from www.rhbinvest.com
Slower GDP Growth In The 3Q, But Prospests Likely
To Improve In 2013

Real GDP growth is estimated to have slackened in the 3Q, after a brief rebound
in the 2Q. Based on the latest available economic data, we estimate that real
GDP growth is likely to have softened to 4.8% yoy in the 3Q, after a rebound
to +5.4% in the 2Q, on the back of a weaker global economy. Indeed, growth
in real exports is estimated to have slowed down during the quarter, as external
demand for the country’s exports was hurt by the protracted euro-debt crisis and
slowing emerging economies. Domestic demand, on the other hand, provided a
strong cushion and is likely to have sustained at a relatively strong pace of
growth in the 3Q, supported by a sustained increase in private investment, while
consumer spending remained resilient during the quarter. Further out, we
expect economic growth to gradually stabilise over time and prospects are likely
to improve with growth inching up to 5.4% in 2013, from +5.0% estimated in
2012, on account of resilient domestic demand and a gradual improvement in
the global economy.



Sluggish Exports But Cushioned By Resilient Domestic Demand

Reflecting weakening external demand for the country’s exports, the Malaysian real       Real GDP is estimated to
GDP growth is estimated to have slackened in the 3Q, after a pick-up in the 2Q.          have grown at a slower
Based on the latest available economic data, we estimate that real GDP growth is         pace of 4.8% yoy in the
likely to have softened to 4.8% yoy in the 3Q, after a rebound to +5.4% in               3Q
the 2Q (see Chart 1). This was attributed to a slowdown in export growth, as the
protracted euro-debt crisis sent the region into a recession and made worse by a
slowdown in emerging economies. Domestic demand, on the other hand, provided
a strong cushion and is likely to have sustained at a relatively strong pace of growth
in the 3Q, supported by a sustained increase in private investment, while consumer
spending remained resilient during the quarter. Compared to the previous quarter,
real GDP growth is estimated to have held stable at 3.0% qoq in the 3Q, the same
rate of increase as in the 2Q.


Chart 1
 Domestic Demand And Exports Weakened, Weighed By Euro-Debt
                            Crisis


 % yoy                                                                        Domestic
                          Exports
    25                                                                         demand
    20
    15
    10
     5
     0
    -5
   -10
                                    GDP

   -15
   -20
   -25
         00   01     02     03      04    05    06   07   08       09    10   11   12

     Note: Q3 numbers are RHBRI’s estimates




                                               ECONOMIC        2        UPDATE
Exports Slowed Further As Euro-debt Crisis Deepened

Growth in real exports is estimated to have slowed down to 0.9% yoy in                          Real         exports          are
the 3Q, after expanding at a more moderate pace of +2.1% in the 2Q, on the back                 estimated to have slowed
of a weakening global economy. This was reflected in a sharper drop in exports to               down in the 3Q, on the
the European Union (EU), which fell by a whopping 22.4% yoy in July-August (in                  back    of    a    weakening
nominal terms), compared with -8.3% in the 2Q and worse than -10.4% recorded                    global economy
in the 1Q. The sharper decline was attributed to a deepening euro-debt crisis, as
reflected in the renewed pressure on Spanish bond yields and its contagion on Italy’s
borrowing costs, causing Spain to undertake more austerity measures in early July.
The bond yields of these two countries have since fallen back to more manageable
levels, after the European Central Bank (ECB) agreed to resume its sovereign bond
purchases through Outright Monetary Transactions (OMTs) based on certain conditions
on 6 September. In the same vein, exports to China slipped into a contraction of
11.5% yoy in July-August, after a rebound to +10.3% in the 2Q, as the economy
slowed down and demand weakened. These were made worse by a slowdown in
exports to ASEAN and Japan, which weakened to 7.6% and 6.8% yoy respectively
in July-August, from the corresponding rates of +10.8% and +10.7% in the 2Q. A
pick-up in exports to the US, which grew at a faster pace of 9.3% yoy in July-August,
compared with +4.7% in the 2Q, however, provided some cushion. This was in
tandem with a stronger economic growth in the US, underpinned by a pick-up in
consumer spending, on the back of a gradual improvement in the housing sector and
employment.

In terms of products, the slowdown in export growth was attributed to a slower                  The     slowdown             was
increase in the exports of non-electrical & electronic (E&E) manufactured goods and             attributed to a slower
a sharper drop in the exports of E&E goods, made worse by a decline in the exports              increase in the exports of
of major commodity products (see Chart 2). The exports of non-E&E manufactured                  non-electrical & electronic
goods slowed down to 4.5% yoy in July-August, after softening to +7.5% in the
                                                                                                (E&E)         manufactured
2Q and from +9.4% in the 1Q. This was reflected in a slowdown in the exports of
                                                                                                goods and a sharper drop
transport equipment; beverages & tobacco; and rubber products as well as a decline
                                                                                                in   E&E     exports,       made
in the exports of chemical & chemical products; non-metallic mineral products;
                                                                                                worse by a decline in the
manufactured metals; toys & sporting goods; and furniture & parts in July-August.
                                                                                                exports           of        major
These were made worse by a sharper drop in the exports of food; and textiles,
                                                                                                commodity products
clothing & footwear. These were, however, mitigated by a pick-up in the exports of
paper & pulp products; petroleum products; and optical & scientific equipment as well
as a smaller decline in the exports of wood products during the period.

 Chart 2
   Weakening Non-E&E And Commodity Exports But Mitigated By
                Smaller Decline In E&E Exports

  % yoy
   80

   60

   40

   20

    0

  -20                                           Non-E&E mfg.goods
                                                E&E
  -40
                                                Commodity
  -60
        97   98   99   00   01   02   03   04     05   06    07       08    09   10   11   12



Similarly, the exports of E&E products relapsed into a sharper contraction of 5.0%              The     exports        of    E&E
yoy in July-August, after recording a smaller decline of 0.5% in the 2Q and compared            products relapsed into a
with -8.5% in the 1Q. This was dragged down by a sharper decline in the exports                 sharper contraction during
of office automation & data processing machines (largely computers), falling by 9.7%
                                                                                                the period
yoy in July-August, compared with -2.8% in the 2Q. This was made worse by a

                                           ECONOMIC               3        UPDATE
decline in the exports of telecommunications & sound recording equipment by 12.1%
yoy during the period, after a pick-up to +6.0% in the 2Q. These were, however,
mitigated by a smaller decline in the exports of electronic components & parts
(largely semiconductor products), which fell by 1.0% yoy in July-August, compared
with -1.3% in the 2Q.

In the same vein, the exports of major commodity products slipped into a                  Major commodity exports
contraction of 16.2% yoy in July-August, after slowing down sharply to +3.5% in the       also slipped due partly to
2Q and from +17.8% in the 1Q. This was attributed to a sharp contraction in the           lower prices
exports of crude oil (-29.8% yoy in July-August versus +1.0% in the 2Q), while the
exports of liquefied natural gas (LNG) slowed down to 4.5% yoy during the same
period, from +18.8% in the 2Q, due to a drop in prices of the former, while the prices
of the latter moderated. These were made worse by a sharper decline in the exports
of palm oil products, which fell by 24.4% yoy in July-August, compared with -6.5%
in the 2Q and -2.7% in the 1Q, due to a sharper drop in prices.

Domestic Demand Remained Resilient

Domestic demand, on the other hand, is estimated to have remained resilient and           Domestic       demand          is
strong, underpinned by a sustained increase in consumer and business spending.            estimated        to      have
Growth is envisaged to have expanded by 10.2% yoy in the 3Q, albeit at a more             remained resilient and
moderate pace than +13.8% recorded in the 2Q (see Table 1). This was on account           strong
of a sustained increase in consumer spending, which is estimated to have grown
by 7.2% yoy in the 3Q, after picking up to +8.8% in the 2Q, as the effects of the
Government’s bonus payments to civil servants continued to be felt. As it stands,
the imports of consumption goods grew by 10.6% yoy in July-August, albeit at a
more moderate pace than +11.1% in the 2Q. Car sales slowed down to 0.7% yoy
in the 3Q, after a strong rebound to +16.2% in the 2Q, as the normalisation of
production and sales caused by Thailand’s flood in late 2011 set in. In the same
vein, credit card, personal and housing loans continued to soften in the 3Q, following
the introduction of the responsible lending guidelines by the Central Bank to contain
rising household debt. These were, however, mitigated by a pick-up in sales tax
collected by the Government, which strengthened to 12.6% yoy in the 3Q, after a
gain of 10.3% in the 2Q, while services tax grew at a robust pace of 23.5% during
                                                                                          Consumer       spending        is
the period, a rebound from a contraction of 2.1% in the 2Q (see Chart 3), indicating
                                                                                          estimated        to      have
that consumer spending remained resilient. Moreover, the Malaysian Institute of
Economic Research’s (MIER) consumer sentiment index improved in the 3Q, suggesting        sustained      its    increase

that consumer confidence was still holding up and consumers are in the mood to            during the quarter

spend (see Chart 4).


 Table 1
                                  GDP By Demand Aggregate (2005=100)

                           2009    2010      2011            2011                 2012              2012(e) 2013(f)


                                                       3Q           4Q    1Q       2Q       3Q(e)
                                                              % Growth in Real Terms

 GDP                       -1.5      7.2       5.1      5.7         5.2    4.9      5.4      4.8         5.0       5.4
 Consumption:
       Private              0.6      6.6       7.1      7.6         7.3    7.4      8.8      7.2         7.6       6.1
       Public               4.9      2.9      16.1     21.1     22.9       7.3      9.4      5.0         5.1       3.4
 Total investment          -2.7     10.4       6.5      5.4         8.4   16.2     26.1     19.6      18.7         9.3
       Private             -7.4     15.5      12.2      2.9     18.8      19.8     24.6     26.0      21.8        12.0
       Public               2.9      5.0      -0.3      9.4         1.9   10.3     28.9     10.0      14.6         5.4
 Goods & services:
       Exports            -10.9     11.3       4.2      4.8         5.5    2.8      2.1      0.9         1.7       5.0
       Imports            -12.7     15.6       6.2      3.9         7.8    6.8      8.1      3.8         5.7       6.9
 Agg.domestic demand        0.3      7.0       8.2      8.7     10.4       9.7     13.8     10.2      10.2         6.6

 (f) RHBRI's forecasts         (e) RHBRI’s estimates


                                       ECONOMIC          4     UPDATE
  Chart 3                                                                Chart 4
       Sales And Services Tax Collected                                       Consumer Confidence Holding Up
                 Picking Up


 % yoy                                                                  Index                               (MIER consumer sentiment index)
                                                                        140
 120
 100                                              Services              120

  80                                                tax
                                                                        100
  60
                                                                        80
  40
  20                                                                    60

  0
                                                                        40
 -20
                                                                        20
 -40                                                 Sales
                                                      tax
 -60                                                                     0
       2005   2006   2007   2008   2009   2010     2011      2012             96   97   98   99   00   01    02   03   04    05   06   07    08   09   10   11   12



In the same vein, we believe private investment is likely to have expanded at a                                             Private                investment
faster pace of 26.0% yoy in the 3Q, after growing by 24.6% in the 2Q, due partly                                            expanded at a faster pace
to a low base effect. Growth was supported by the implementation of the Economic                                            in the 3Q, due partly to a
Transformation Programme (ETP), the Public-Private Partnership (PPP) and various                                            low base effect
corridor projects. As it stands, corporate loans held up at 13.2% yoy at end-
September, compared with +13.7% at end-June and +12.3% at end-March. The
moderation was attributed to a slower increase in loans extended to the manufacturing;
mining & quarrying; real estate; and finance, insurance & business sectors. These
were, however, mitigated by a pick-up in loans channelled to the agriculture; wholesale,
retail trade, hotels & restaurants; construction; transport, storage & communications;
and education sectors. In particular, loans extended to the construction sector
jumped by 21.0% yoy at end-September, after rising to 15.1% at end-August and
from a low of +3.6% at end-February. In the same vein, the imports of capital
goods were sustained at a strong double-digit rate of 22.8% yoy in July-August, after
strengthening to 27.2% in the 2Q. Similarly, the sales of commercial vehicles grew
by 19.6% yoy in the 3Q, albeit at a more moderate pace compared with +25.3%
in the 2Q. Nevertheless, business turned more pessimistic. The Malaysian Institute
of Economic Research’s (MIER) business condition index fell for the second consecutive
quarter in the 3Q due to unfavourable outlook for production and earnings over the
next three months, given lingering uncertainty in the global economy. This suggests
that business spending will likely moderate in the months ahead.

Public investment, however, is estimated to have grown at a slower pace of 10.0%                                            Public          investment           and
yoy in the 3Q, compared with +28.9% in the 2Q, due partly to a higher base effect.                                          consumption grew at a
Indeed, gross claims on government rose by 4.8% yoy at end-September, after                                                 slower pace in the 3Q
growing by 1.2% yoy at end-June, pointing to an increase in the Government’s
disbursement of development expenditure. Consequently, fixed capital formation
is likely to have slowed down to 19.6% yoy in the 3Q, after expanding at a strong
double-digit rate of +26.1% in the 2Q. Like wise, public consumption expenditure
is estimated to have weakened during the quarter due partly to a high base effect.

Mixed Performance In key Sectors

On the supply side, value added in the manufacturing sector is estimated to                                                 The manufacturing sector
have weakened to 3.4% yoy in the 3Q, after a rebound to +5.6% in the 2Q (see                                                is    estimated             to       have
Table 2), in line with a slowdown in exports. As a result, the production of export-                                        weakened, in line with a
oriented industries softened to 1.0% yoy in July-August, from +4.9% in the 2Q, due                                          slowdown in exports
mainly to a slowdown in the production of electronic goods, while the production of
electrical goods fell during the period. Similarly, the production of chemicals; petroleum
products; and wood & wood products weakened, while the production of textiles &
apparels and paper, pulp & board products fell by a larger magnitude in July-August.
These were, however, mitigated by a pick-up in the production of rubber products
as well as a smaller decline in the production of off-estate processing goods during

                                                 ECONOMIC           5    UPDATE
the period. Similarly, output of domestic-oriented industries slowed down to 5.0%
yoy in July-August, from +8.2% in the 2Q. This was on account of a slower increase
in the production of consumer-related products, mainly due to slower increases in the
production of transport equipment, food, and tobacco as well as a decline in the
production of beverages. These were, however, mitigated by a pick-up in the
production of construction-related materials such as fabricated metal products but
was offset partially by a slowdown in the production of non-metallic minerals and a
sharper decline in the production of iron & steel products.

  Table 2
                                      GDP By Industrial Origin (2005=100)

                    2009     2010       2011             2011                   2012               2012(e)          2013(f)
                                                   3Q           4Q     1Q       2Q        3Q(e)
                                                % Growth in Real Terms

GDP                 -1.5       7.2       5.1       5.7          5.2    4.9      5.4        4.8          5.0              5.4

Agriculture          0.1       2.4       5.9       8.8          6.9    2.1     -4.7        1.8          0.4              2.0
Mining              -6.5      -0.4      -5.7      -5.9         -3.8    0.3      2.3       -0.7          0.8              1.5
Manufacturing       -9.0     11.9        4.7       5.4          5.2    4.4      5.6        3.4          4.0              6.2
Construction         6.2       6.0       4.6       4.0          7.5   15.5     22.2       15.0         15.8          10.5
Services             2.9       7.2       7.0       7.1          6.6    5.3      6.3        6.2          6.0              6.1

(f) RHBRI's forecasts            (e) RHBRI’s estimates

In the same vein, the services sector is estimated to have moderated to 6.2%              Services             activities
yoy in the 3Q, but remained resilient compared with +6.3% in the 2Q, supported by         moderated but remained
a sustained increase in consumer spending and investment activities. As a result,         resilient, supported by a
activities in the wholesale & retail trade and accommodation & restaurants sub-           sustained       increase             in
sectors are likely to have held up during the period, in tandem with a pick-up in loans   consumer spending               and
extended to the sector. Similarly, growth in the finance & insurance sub-sector is        investment activities
likely to have remained resilient, as loan growth was relatively robust during the
quarter. Transport & storage and communications sub-sectors, however, are likely
to have grown at a slower pace during the quarter as trade activities softened. In
the same vein, activities in the utilities and real estate & business sub-sectors are
likely to have slackened during the quarter.

Construction activities are also estimated to have moderated to 15.0% yoy in the          Construction activities are
3Q, after picking up to +22.2% in the 2Q. Despite the moderation, growth remained         envisaged           to         have
strong, supported by the ongoing construction projects following the implementation       moderated       in       the    3Q,
of the ETP and PPP as well as various corridor projects. As it stands, loans extended     after a strong pick-up in
to the construction sector surged by 21.0% yoy at end-September, afterrising to           the previous quarter
+7.1% at end-June. Similarly, the production of construction related materials bounced
back to 7.3% yoy in July-August, after slowing down to +4.8% in the 2Q. In the
same vein, the issuance of new permits and renewal of permits for sales of houses
strengthened in the 3Q, after a pick-up in the 2Q. The number of housing units to
be built by private developers approved for construction by the Ministry of Housing
and Local Government, on the other hand, slowed down sharply to 3.2% yoy in the
3Q, after surging by 126.9% yoy in in the 2Q, suggesting that residential construction
will likely slow down going forward.

Mining output is also estimated to have fallen by 0.7% yoy in the 3Q, after a             Mining output contracted

rebound to +2.3% in the 2Q, as growth in the 2Q was boosted by a low base effect.         due to a drop in crude oil
Already, the production of crude oil fell by 0.5% yoy in July-August, compared with       and LNG production
+5.1% in the 2Q. Similarly, the production of LNG fell by a larger magnitude of 9.0%
yoy in July-August, compared with -5.0% in the 2Q.

In contrast, agriculture output is estimated to have rebounded and increased by           Agriculture              output,
1.8% yoy in the 3Q, after contracting by 4.7% in the 2Q. This was due mainly to           however, rebounded in the
a rebound in palm oil production to 1.4% yoy in the 3Q, after falling sharply by          3Q,    due    mainly       to    an
17.9% in the 2Q. These were, however, offset partially by a sharper drop in the           increase      in     palm        oil
prdocution of rubber, which fell by 19.6% yoy in July-August, compared with -2.4%         production
in the 2Q.
                                       ECONOMIC            6     UPDATE
Weak Global Economy, But Likely To Improve Gradually In 2013

Going forward, the European Central Bank (ECB) pledged to resume its sovereign             The    euro-debt         crisis
bond purchase programme through Outright Monetary Transactions (OMTs) but based            stabilised somewhat of
on certain conditions on 6 September. Although the move will not help to generate
                                                                                           late but there are still
economic growth for the region immediately, it will buy more time for troubled
                                                                                           hurdles
nations to reform their fiscal positions and economies, while risk of a disorderly
break-up of the Eurozone is also diminishing on the back of the backstop measure.
As a result, it has helped to calm down financial markets with Italy’s and Spain’s
bond yields falling to manageable levels. Still, there are hurdles as investors are
still waiting for Spain to seek a full bailout from Eurozone governments and sign up
to conditions in order to obtain the help from the ECB and the outcome of Greece
and Troika’s negotiation for it to secure the disbursement of aid that has been
suspended. Any disappointment, however, could still trigger financial chaos in the
                                                                                           The Eurozone economy is
Eurozone and spread to global financial markets. Meanwhile, the Eurozone economy
                                                                                           likely to have slid into a
is still deteriorating (see Charts 5 & 6) and is likely to have slid into a recession in
                                                                                           recession in the 3Q but
the 3Q, after recording a contraction of 0.2% qoq in the 2Q. Nevertheless, the
                                                                                           will likely return to a
Eurozone economy will likely return to a modest growth in 2013, once the
euro-debt crisis stabilises and on the back of a recovery in the global economy.           modest growth in 2013


Chart 5                                                           Chart 6
 Eurozone: Both Manufacturing And Services                         Eurozone: Unemployment Rising To The
    Activities Still Mired In Contractions                                 Euro-era Record High


Index                                                           % of labour force
 65                                                PMI           12
                                                 services                                                      11.6%
                                                                11.5
 60
                                                                 11
 55                                                             10.5

 50                                                              10

                                                                 9.5
 45
                                                                  9

 40                                                              8.5

 35                                          PMI                  8
                                          manufacturing          7.5
 30
                                                                  7
      05   06    07     08    09     10     11     12                  05   06   07   08   09    10     11     12




On a brighter note, the US economy will likely sustain its growth in 2013, albeit          The US economy will likely
at a modest pace, and provide an anchor of stability to the global economy,                sustain its growth in 2013,
in our view. Indeed, its economic growth bounced back to an annualised rate of             albeit at a modest pace,
2.0% in the 3Q. In addition, the housing sector recovery is building momentum (see         and provide an anchor of
Chart 7) and existing home as well as new home prices are on the rise. This,               stability to the global
together with a gradual improvement in the labour market, has boosted consumer             economy, in our view
confidence, resulting in the University of Michigan’s consumer sentiment index rising
to a high of 83.1 in October, the highest level since September 2007 (see Chart 8).
As a result, consumers are more willing to spend with personal consumption
expenditure (PCE) strengthening to an annualised rate of 2.0% in September, up
from a low of +0.9% in July. Similarly, its services activities continued to expand,
while manufacturing activities have expanded for two straight months up to October.
These will likely be reinforced by the third round of quantitative easing (QE)
implemented by the US Fed in September. The Fed expects its latest move to help            The impending fiscal cliff,

accelerate the housing sector’s recovery and sustain consumer spending. Although           if not resolved, could still
there are road bumps ahead, as an impending “fiscal cliff” may send the US                 derail the US economic
economy into a recession in 1H 2013, we are of the view that the Congress will             recovery
eventually pass a compromised legislation to prevent it from happening.




                                          ECONOMIC          7    UPDATE
Chart 7                                                                                     Chart 8
      US: Housing Sector Is Recovering                                                          US: Consumer Confidence Improving



% yoy                                                                                       Index             (University of Michigan’s
  50                                            Exisying home                                                   consumer sentiment)
                                                                                            100
                                                     sales
  40                                                                                         95
  30                                                                                         90
  20
                                                                                             85
  10
                                                                                             80
  0
                                                                                             75
 -10
                                                                                             70
 -20
                                                                                             65
 -30
                                                                                             60
 -40
                                                                                             55
 -50                                                                   New home
                                                                         sales               50
 -60                                                                                               05   06   07     08     09     10          11     12
       00   01    02   03        04   05   06    07     08        09    10   11    12



Although China’s economic growth slowed down to 7.4% yoy in the 3Q, the slowest                                            The      latest         economic
since 1Q 2009, the latest economic indicators suggest that the economy is stabilising                                      indicators suggest that
and might have seen its worst in the 3Q. As it stands, China’s credit and retail sales                                     the Chinese economy is
growth are trending up (see Chart 9), while fixed-asset investment is still expanding                                      stabilising and might have
at a double-digit rate of above 20%, pointing to a resilient domestic demand. Also,                                        seen its worst in the 3Q
its manufacturing activities returned to a growth in October, after two consecutive
months of contraction, underpinned by an improvement in new orders. The country’s
exports also strengthened for the second consecutive month in September (see
Chart 10), quelling fear of a collapse in external demand for the country’s goods.
Moreover, we believe there is room for the authorities to ease its policy further to
spur the country’s economic recovery given that inflation has cooled to a more
comfortable level. China, however, appears to be in no rush to ease its monetary
policy more aggressively, after reducing the borrowing cost twice by 56 basis points
to 6.0% since June and cutting the reserve requirements three times since November
2011. Instead, it has rolled out more infrastructure spending, boosted tax support
for exporters and subsidised energy-saving household electrical appliances to
complement its monetary policy easing. Separately, India’s economy rebounded to                                            India’s economy will likely
a stronger growth of 5.5% yoy in the 2Q and the government has undertaken some                                             remain weak in the near
measures to ease investors’ concerns. Nevertheless, the country’s economic growth                                          term but it poses no major
will likely remain weak in the near term but its impact to the rest of the world is                                        threat        to    the   global
far less significant relative to China, given that it is a more domestic-oriented                                          economy
economy.


Chart 9                                                                                     Chart 10
                 China: Credit And Retail Sales                                                  China: Exports Gradually Stabilising
                         Bouncing back


 % yoy                                                                                      % yoy
 40                                                                                          60

                                                                                             50
 35
                                                                                             40
                                                                             credit
 30                                                                                          30

 25
                                                                                             20                                                           9.9%
                                                                                             10
 20                                                                                           0

 15                                                                                          -10

                                                                                             -20
 10                                                   Retail
                                                      sales                                  -30
  5                                                                                          -40
       05        06         07        08        09           10         11        12               05   06   07     08     09       10        11     12




                                                                  ECONOMIC              8    UPDATE
The Japanese economy was also weighed down by its weak exports in recent                 A recovery in the global
months, forcing the government to roll out more policy easing and stimulus spending.     economy will augur well
A recovery in the global economy in 2013, however, will augur well for Japan’s           for Japan’s exports in
exports and its economic growth given that it is export dependent. This will likely      2013
be supported by reconstruction work for the disaster-affected areas.

Although the prolonged euro-debt crisis and the looming fiscal cliff in the US remain    We      expect         global
a major drag to the global economy in the near term and there are still gaps to be       economic uncertainties to
breached, we expect compromises to be reached at the last minutes to sort out            gradually clear out as time
these gaps and global economic uncertainties will likely clear out gradually             progresses and this will
as time progresses. This will likely provide a lift to the country’s exports in 2013.    provide    a    lift   to   the
As a result, we expect real export growth to stage a rebound to 5.0% in 2013, albeit
                                                                                         country’s exports
from a low base and after slowing down to +1.7% estimated for 2012. We expect
a broad-based pick-up in exports from the exports of electrical and electronic (E&E)
products to non-E&E manufactured goods and commodities.

Outlook To Improve On Resilient Domestic Demand

Domestically, the implementation of the ETP, PPP and various economic corridor           The implementation of the
projects will likely sustain the country’s domestic demand and economic growth in        various            economic
2013. This will likely be reinforced by the Government’s allocations in the 2013         programmes will likely
Budget to accelerate the implementation of these economic programmes.                    sustain    the     country’s
Consequently, we expect domestic demand to sustain at a growth of 6.6% in 2013,
                                                                                         domestic       demand       and
albeit at a more moderate pace than +10.2% estimated for 2012, due partly to the
                                                                                         economic growth in 2013
higher base effect. Indeed, consumer spending is envisaged to grow at a slower
pace of 6.1% in 2013, but will likely remain relatively strong and resilient compared
with +7.6% estimated for 2012. This will likely be supported by the Government’s
initiatives to continue easing people’s financial burden in the 2013 Budget. High
savings, rising consumerism and favourable labour market conditions will also provide
an additional support to consumer spending. Nevertheless, the ability of consumers
to spend will likely be capped somewhat by the Central Bank’s moves to rein in
household debt.

In the same vein, businesses will likely continue to increase spending on                We we expect real GDP to
fixed assets, as they gain confidence after global economic uncertainties gradually      expand at a slightly faster
clear out as time progresses and supported by the implementation of projects under       pace of 5.4% in 2013,
the various economic programmes in 2013. As a result, private investment is              compared       with    +5.0%
projected to expand at a relatively strong growth of 12.0% in 2013, albeit at a slower   estimated for 2012
pace than +21.8% estimated for 2012. Public investment is also projected to
expand at a slower pace of 5.4% in 2013, after a surge to 14.6% estimated for 2012.
The slower growth is also in line with a decline of 11.4% in development expenditure
projected by the non-financial public enterprises (NFPEs) in 2013, after surging by
126.6% estimated for 2012. Growth, however, will likely be supported by the PPP
projects. As a whole, we expect fixed capital formation to sustain at a growth
of 9.3% in 2013, after expanding by an estimate of +18.7% in 2012. Similarly,
public consumption will likely expand at a slower pace in 2013, in line with the
Government’s efforts to reduce spending in order to contain its budget deficit and
debt. As a whole, we expect real GDP to expand at a slightly faster pace of
5.4% in 2013, compared with +5.0% estimated for 2012.




                                       ECONOMIC          9   UPDATE
                       RHB DEALING AND RESEARCH OFFICES
    MALAYSIA
    RHB Investment Bank Bhd
    Level 10, Tower One, RHB Centre,
    Jalan Tun Razak
    50400 Kuala Lumpur
    P.O. Box 12699
    50786 Kuala Lumpur, Malaysia
    Tel (General)   :     (603) 9285 2233

    Dealing Office
    Tel (Dealing)  :          (603) 9285 2288
    Fax (Dealing)  :          (603) 9284 7467

    RHB Research Institute Sdn Bhd
    Level 10, Tower One, RHB Centre,
    Jalan Tun Razak
    50400 Kuala Lumpur
    P.O. Box 12699
    50786 Kuala Lumpur, Malaysia
    Tel (Research) :      (603) 9280 2185
    Fax (Research) :      (603) 9284 8693



    IMPORTANT DISCLOSURES

    This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and
    RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such
    circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available
    data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other
    business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an
    offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated
    herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against
    RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

    This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial
    circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors.
    RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek
    the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual
    circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any
    loss or damage arising out of the use of all or any part of this report.

    RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing
    activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage,
    banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect
    transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be
    involved in this transaction.

    “Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company
    and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons”
    are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered
    by RHBRI in this report or in RHBRI’s previous reports.
    This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed
    by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment
    banking personnel.

    The research analysts, economists or research associates principally responsible for the preparation of this research report have
    received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive
    factors and firm revenues.


u u u u u u u u u u u u u u u u uu u u u u u u u u u u u u u u u u u u u u uu u u u u u u u u u u u u u u u u u u u u u u u u u u u u u u u u u u u u




     Lim Chee Sing
     Director

    RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation.
    Additional information on recommended securities, subject to the duties of confidentiality, will be made available
    upon request.

    This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and
    RHBRI accepts no liability whatsoever for the actions of third parties in this respect.

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:57
posted:12/1/2012
language:
pages:10