Nikkei Malaysia PMI to see limited ownside due to rising exports

0

KUCHING: Despite the Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) falling to an all-time low of 46.9 in June, analysts are still adamant that further deterioration will be limited due to rising exports.

To recap, June’s PMI fell by a significant 1.8 point from 48.7 in May and was purported to be caused by worsening business conditions and decline in output and new orders.

In a report, AmInvestment Bank Bhd (AmInvestment Bank) was not surprised by this development, noting that the decline was further exacerbated by lower loans approved.

“We are not surprised with the latest data largely because we feel the overall business sentiment should bottom out sometime in the second half of 2017 (2H17).

“For a start, with the drop in production and new orders in May, it should have some knock-on effects in the month of June’s headline PMI.

“Furthermore, the loans approved in May fell by 2.3 per cent y-o-y due to poor approvals in key areas like purchase of consumer durables with -88.9 per cent y-o-y, construction with -21.8 per cent y-o-y and working capital with -36.8 per cent y-o-y.”

Looking forward, the bank was not expecting the PMI figure to recover anytime soon as they anticipate further headwinds on the sector due to stagnant employment, lower purchasing activity, input stocks and worsening orders.

The downside, however, is estimated to be limited as optimism still remains in the business environment especially as cost pressures have eased to their weakest in eight months in June.

“In addition, the moderate improvement on the global front and stable commodity prices should see exports supporting the domestic economy as new orders for exports rose for the second time in three months,” guided the bank.

Agreeing with this is the research arm of MIDF Amanah Investment Bank (Midf Research) who notes that national exports have been recording double digit growths for the 5 consecutive months in 2017.

For April’s figures, exports and imports both saw an expansion of 20.6 and 24.7 per cent y-o-y which pushed trade balance to improve to a year high of RM8.75 billion and surpass the first quarter average of RM6.3 billion.

The continued improvement in exports was mostly attributed to sustain the global trade demand especially for electrical and electronic (E&E) products which provided a 7.8 per cent percentage contribution to export growths according to data from the Department of Statistics Malaysia and Midf Research.

With that being said, the research arm reaffirmed its confidence in a growing export market by revising their export growth rates upwards to 14.5 per cent from 8.5 per cent, while also revising their 2017 gross domestic product (GDP) growth rate to 5.1 per cent from 4.9 per cent.

“The windfall from surging trade is a boon especially for exports-oriented industries such as (E&E), chemicals, petroleum products and palm oil. Hence, there will be a positive trickle-down effect to domestic economic activities via output production, investment, employment, income and consumption,” justified the research arm.

On the flipside, AmInvestment Bank has maintained its 5.0 per cent GDP growth rate with lowered confidence of the overnight operating rate (OPR) staying at its current level of 3.0 per cent.

“We have raised the probability for BNM to raise the OPR by 25 basis points in 2H17 to a 45 per cent chance from the previous 30 per cent chance due to the stronger than expected economy growth in 2017 that was witnessed by the 5.6 per cent GDP growth in 1Q17.”