Wednesday, February 11, 2009

Malaysia output falls sharply- Malaysiakini

KUALA LUMPUR - MALAYSIA'S factory output fell at its steepest pace in 15 years in December from a year ago, official data showed on Wednesday, reinforcing expectations the government will step up spending to fend off a recession.

It was the fourth straight month of decline in output in the Southeast Asian country, which is grappling with collapsing demand for electronic goods, the biggest export revenue earner for the country.

The index of industrial production , which measures manufacturing, mining and electricity output, fell 15.6 per cent, worse than economists' median expectation of a 10.7 per cent annual decline.

It was the biggest fall in output since 1994, when it fell 27.4 per cent.

'Obviously the readings have undershot market expectations. It was not entirely unexpected given the poor regional figures,' said IDEAglobal economist Philip McNicholas. 'This doesn't bode well for the December trade numbers.'

The government is due to release the December trade data on Thursday. Exports in December are expected to fall 10 per cent from a year ago, the steepest drop in nearly seven years, according to a Reuters poll of 11 economists.

In November, factory output fell a revised 8.2 per cent on year, mirroring a 4.9 per cent decline in exports the same month. Manufacturing output, which accounts for two thirds of the index, fell 18.4 per cent in December from a year ago.

In addition to falling demand for electronic goods, lower palm and crude oil prices are also hitting Malaysia's exports.

'The government is going to have to seriously revise its growth figures. It is going to be forced to adopt radical measures,' said Mr McNicholas.

Many private economists are predicting a recession this year, the first in eight years, but the government has so far stuck to its forecast of a 3.5 per cent growth.

Finance Minister Najib Razak, who will become Prime Minister in March, said last week the government is ready to take radical steps to boost demand in its export-dependent economy.

Malaysia has already injected US$2 billion (S$3 billion) to boost its economy and Najib is expected to announce a second stimulus package this month. Sources familiar with government thinking told Reuters last week that the size of the second package is likely to be larger than the first one.

Joanna Tan, a regional economist at Forecast Pte, said the weak production data should also set the stage for further monetary easing at the central bank's next meeting.

Malaysia's central bank last month slashed its key policy rate by a surprise 75 basis points to its lowest level in over 10 years.

Goldman Sachs is forecasting the overnight policy rate to stand at 1.5 per cent by the end of this year from 2.5 per cent currently. -- REUTERS

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