Business

Saturday May 23, 2009

Manufacturing bouncing off bottom but flu outbreak remains a threat

By CECILIA KOK


DESPITE the rapid spread of the influenza A(H1N1) virus, much attention is still on the improving economic indicators that have been suggesting that the worst could be over for the global economy.

Most countries, particularly major economies such as the US and China, have continued to record “less worse” economic data over the past two months. And this has prompted many economists and policymakers to claim that the global economy is on the verge of making a gradual climb back towards stability after experiencing some steep declines in the second half of last year and early this year.

In line with global trends, Malaysia too is seeing improvements in its leading economic indicators for March, such as the trade and industrial production as announced early this month.

Over the week, the Department of Statistics reported that the overall sales value of the manufacturing sector for March has improved by 6.3% to RM36.6bil, compared with RM34.4bil in the preceding month. On an annual basis, though, the manufacturing sales value for the month in review declined 25.5% from RM49.1bil in March 2008.

While most economists have attributed the improvements in manufacturing data to restocking activities instead of a long-term sustained rise in final demand, RAM Holdings Bhd economist Dr Yeah Kim Leng holds a different view.

He believes that the Malaysian manufacturing sector is beginning to bounce off the bottom and this is not entirely due to restocking activities, but it is also partly due to improvements in consumer demand.

He explains that the panic among consumers and businesses that have resulted in tremendous cutbacks in the final consumption of goods and services late last year and early this year during the height of the global economic crisis has somewhat abated. With the general economic outlook improving, confidence is gradually returning to the market, and this has improved final consumption demand.

“If confidence can be sustained, final consumption demand will remain in the positive territory,” Yeah says.

However, Standard Chartered Bank Global Research economist Alvin Liew says it is still too early to say that the Malaysian manufacturing sector is out of the woods.

The Singapore-based economist explains that while the sharp decline in imports (-28.7% year-on-year for March), helps widen Malaysia’s trade surplus, it may be a sign of companies significantly delaying their capital investments.

This could be detrimental to the Malaysian manufacturing capacity as it will not be able to reap the full benefits of future demand when the global economy recovers, says Liew.

Nevertheless, Liew believes that the Malaysian manufacturing sector will continue to see less severe declines in the months ahead, although the sector will likely remain in the negative territory for most part of the year. He opines that Malaysia will see its economy on the growth path once again by year-end.

On the other hand, economists are not ruling out the risk of the influenza A(H1N1) outbreak messing up their “improved” outlook for the already weak economies of the world.

It has been almost a month now since the outbreak of the flu. The new strain of virus seems to be very contagious, having spread to 41 countries, including Malaysia, and sickened more than 11,000 people worldwide within a month.

Nevertheless, it is still perceived that the outbreak has yet to have any major dampening effect on the global economy that is still reeling from its worst downturn in years.

Clarifications by medical specialists and health authorities that the new flu virus is not as potent or deadly as initially feared have helped put public panic to rest. This is supported by official statistics that show a relatively low mortality rate of less than 0.8% thus far.

But according to Liew, the new flu virus has injected some amount of uncertainty that could potentially derail the chances of a global economic recovery, which many have foreseen to begin late this year.

The fear is that there could be a risk of a second wave of influenza A(H1N1) returning as a deadlier virus.

Over the week, World Health Organisation director-general Margaret Chan warned the international community not to take the influenza A(H1N1) virus lightly as we could be seeing a “pandemic influenza evolving in front of our eyes”.

Taking the cue from the outbreak of the severe acute respiratory syndrome, or SARS, in 2003, any panic caused by a pandemic could lead to a deterioration of consumer confidence and curtail the movement of people and economic activities. The new virus, therefore, is certainly not a welcome guest to our “hopeful” economic recovery party.

Yeah believes that authorities play an important role in minimising the risk that the influenza A(H1N1) virus poses to the economy. Close monitoring of the situation and quick actions are warranted to curb further spread of the virus, he says.

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