KUCHING: While the contraction in industrial performance index (IPI) came as a surprise, a ‘double dip’ in the economy will mostly likely be avoided given that the pace of decline remains slower than the slump seen during the 2008 credit crisis.
“There seems to be no fresh hints of a potential economic contraction in the near term. In a meantime, a low base effect will likely provide some additional support as gross domestic product (GDP) growth in the second half of last year was severely affected by slower growth in external demand,” AmResearch Sdn Bhd (AmResearch) stated in a research report yesterday.
“On the back of lower inflation levels as well favourable labour market conditions, private consumption will also further support GDP growth through an increase in domestic demand,” it added.
However, the possibility of the economy underperforming had increased, given the weakening of external demand following the heightened recession risks in the Organisation for Economic Co-operation and Development (OECD) countries and easing growth in the emerging markets.
For the record, Malaysia’s industrial production fell unexpectedly in July, contracting by 0.6 per cent year-on-year (y-o-y) versus a revised higher than expected estimated expansion of 1.3 per cent in June.
This was the second contraction in three months and was widely unexpected, as the fall was contrary to consensus numbers vis-a-vis the house estimate of a two per cent expansion. The research firm further pointed out that while trade figure had continued to perform well in the last two months, the continuing decline experienced in the industrial economies remained to be the biggest risk factor for manufacturing as well as external demand in the coming months. This was supported by easing purchasing managers index (PMI) data globally as well as in the region.