Economists: Too early to tell if Malaysian markets have bottomed out

From the Star today...

PETALING JAYA: It’s too early to tell if the downtrend in the domestic economy and financial markets has bottomed out despite the more positive news flow and the stockmarket rallies of late, economists said.

AmResearch Sdn Bhd senior economist Manokaran Mottain said in a report that although the pace of drops in economic data had slowed, it was premature to claim that the manufacturing sector had started to recover.

Other indicators such as employment, household and private consumption as well as capital spending by businesses could still contract, thereby putting pressure on the overall economy, he reckoned.

Kenanga Research economist Wan Suhaimie Saidi said the decline in imports, in particular capital and consumption goods, showed clear indications of continued weakening domestic demand while the fall in the purchase of intermediate goods, which are goods used to produce finished products, was still down by 33.3% year-on-year and 6.2% month-on-month.

He added that this might indicate external demand could weaken further. February’s trade data showed that while exports were still down year-on-year, it increased by 3.4% compared to January. Imports, on the other hand, showed a decline of 8.4% month-on-month.

Industrial output data also showed signs of recovery, posting a slower decline of 14.7% year-on-year in February, against a 20.2% fall in January.

Prices of crude palm oil and crude oil futures have also risen, indicating that demand and economic activity may pick up again as the stimulus packages launched by various governments take effect.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng acknowledged that the latest numbers showed that things had started to stabilise.

“The downtrend looks like bottoming out as they have eased to declines of 10% to 20% compared to 20% to 40% before,” he said.

In particular, Yeah said China’s Purchasing Managers’ Index, which covered exports, inventories and production, had bounced off its lows and now stood at 52.4% in March.

“This is the first time it is above 50%, which indicates that domestic production is actually rising,” he said, adding that China’s recovery might provide some support to commodity-exporting countries.

Yeah said that while there were positive signs of stabilisation, there were those who regarded any recovery as patchy and unsustainable as long as the US, Japan and EU have not recovered.

“The subprime problems, which caused the financial crisis and wiped out wealth, have not been resolved and will continue to cast a pall on any silver lining in the US economy,” he said.