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Decline in factory output [09-10-2012]  
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Malaysia's manufacturing activity in August is expected to decline to negative growth on weak demand due to a combination of recession and stubbornly high unemployment.

Economists expect a median 2% decline in the industrial production index (IPI) for the month compared to a year ago when the Statistics Department releases the data on Thursday.

This follows a slump in factory orders seen throughout East Asia and Asean as external demand remains soft due to elevated unemployment in the United States and the eurozone. Last Friday, data released by the Statistics Department showed exports fell 4.5%, worse than the 1.7% rise in median expectations.

Alliance Investment Bank Bhd chief economist Manokaran Mottain expects the IPI to dip into negative growth for the first time since July last year. “In my opinion, we're not out of the woods yet. The worst is yet to come because there's no resolution to the eurozone crisis,” he told StarBiz.

Manokaran said the expansion of the Institute for Supply Management's purchasing managers index (PMI) for manufacturing in the United States last month following three months of contraction would not be sustainable.

He said a combination of factors persistently high unemployment, the US fiscal cliff (tax increases and spending cuts which may weigh heavily on growth if these come into effect next year) and the potential for several members to exit the 17-member eurozone continue to cast a shadow over the global economy.

The JP Morgan global manufacturing PMI, produced in conjunction with Markit, showed that factory orders remained under downward pressure with the average reading through the third quarter as a whole at 48.5 (anything below the 50 reads as a contraction), below the second quarter's 50.4 and the weakest since the second quarter of 2009.

The data showed production and new orders each declined for the fourth successive month in September while new export orders fell and for the fifth straight month.

Markit said in a press release last week that “the outlook for production in the coming months also remained muted” while the new orders to inventory ratio stayed at a broadly neutral level despite ticking higher.

RHB Research Institute Sdn Bhd economist Peck Boon Soon said the eurozone recession and the impending threat of the fiscal cliff has negative implications for emerging economies.

“There'll be an impact on emerging economies' factory output since they still rely on the developed markets,” he said.

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