January exports up 8.9% to nearly RM47b

Malaysia's exports remained robust in January 2007 at RM46.98 billion, up 8.9% from a year ago, underpinned by higher shipments of electrical and electronic (E&E) products, chemicals products and palm oil. However, this came below market consensus of 14.3%.

The Malaysian External Trade Development Corporation (Matrade) said consistent with the seasonal and regional trends of lower exports in January compared with the preceding month, exports in January 2007 were 10.5% lower than the RM52.53 billion in December 2006.

E&E products accounted for RM22 billion of the exports, followed by chemical and chemical products (RM2.71 billion), liquefied natural gas (RM2.4 billion) and palm oil (RM2.1 billion).

Malaysia's export growth pales in comparison to its regional peers, with the exception of Indonesia, which staged a stronger rebound in January.
Economists expect export growth to trend lower between 5% and 7% in February and March.

January's trade surplus fell to RM6.61 billion as imports picked up significantly, especially for intermediate and capital goods.

Import growth accelerated unexpectedly to 17.6% to RM40.38 billion in January from RM34.34 billion year-on-year. However, the imports were lower than the RM40.94 billion in December 2006.

CIMB estimates exports to grow at 7% in 2007 on the back of stronger global growth momentum, especially the US economy in the second half of the year.

Foreign reserves up strongly by US$3.4b in February

Bank Negara Malaysia's foreign exchange holdings rose by US$1.8 billion (about RM6.3 billion) in the second half of February (US$1.6 billion) to US$86.9 billion as at end-February.

This increase is the highest monthly rise, matching the net rise of US$3.5 billion in July 2005 when the ringgit was floated.

Year-to-date, foreign reserves have gained US$4.4 billion, compared to US$1.7 billion a year earlier.

The rise of reserves in February was mainly due to strong net inflows of portfolio money, in tandem with the buoyant equity market.

The central bank has continued to absorb excess liquidity from the banking system. As at February, it mopped up funds of some RM214.4 billion.

Moving forward, economists expect foreign reserves to rise at a more moderate pace, given the narrower trade surplus on the back of slowing export growth. They also expect some unwinding of portfolio funds following the recent sharp correction of equity prices.

January IPI growth slows unexpectedly

Industrial production skidded sharply to 2.3% year-on-year in January compared with 6.4% in December 2006. This was significantly below market consensus of 6%.
The main cause for the slowdown in IPI was the manufacturing sector, which slowed from 7.9% in December 2006 to 2.3% in January. This is partly due to slower production across the board, in tandem with the slowing global demand.
Output growth of the electricity and mining sectors came within market expectations, increasing by 8.1% and 0.2% respectively in January.

CIMB expects IPI to grow between 3% and 4% in the first quarter of the year, while IPI to moderate to 4.5% in 2007.

Economy grows modestly in most of US
Economic activity is growing at a modest pace in most parts of the country but has started to slow in the Northeast and Texas, according to a report by the Federal Reserve.

The Fed's "beige book", a collection of anecdotal economic reviews from the Federal Reserve's 12 regional banks prepared for its policy makers' March 20-21 meeting, gave no indication that the Fed might be about to lower interest rates.
Nevertheless, investors continue to put high odds on the possibility that the Fed will do so by the end of June.

The report found "modest expansion in economic activity" in many districts, including the regions centred on Chicago, Minneapolis and Philadelphia. But some districts noted some slowing, including Dallas, Boston and St Louis. It also noted continued demand for skilled workers and some pressure to increase wages.
For most regions, retail sales and the service sector were steady, though vehicle sales remained weak -— especially sport-utility vehicles and models from domestic manufacturers.

However, manufacturing, which had been a weak spot over the past few months, was "steady or expanding", and commercial real estate was strong in several districts.

A number of districts reported that manufacturers were optimistic about the near future and had plans to increase investment in coming months.
In a separate report, the Fed said growth in consumer credit slowed in January, tracking slower retail sales. Overall, consumer credit increased US$6.44 billion during the month to US$2.411 trillion, led by loans for things like cars and vacations.

Thailand's 4Q2006 GDP growth slackens further

Thailand's economic growth slackened further to 4.2% in the 4Q2006 from 4.7% in 3Q, but this came in ahead of market expectations of 3.9%.
For the full year, real GDP expanded by 5% compared with 4.5% in 2005, which is in line with market expectations.

The country's low levels of consumer and business confidence remained a significant drag on domestic demand.

With exports expanding at a stronger pace relative to imports, net exports contribution to overall GDP growth soared to 3.9% points in 4Q from 0.5% points in 3Q

Economists expect net exports contribution to be lower in 2007 as exports slow in tandem with the slowing global growth.

CIMB expects that slower growth will persist in the first half of the year as potential foreign investments are being put on hold for fear of more radical changes in the country's policy. For 2007, the research house is maintaining growth estimates at 4%.

It also expects the Thai central bank to cut policy rates by another 50 basis points to 4% by 2Q2007.

Japan's indicator index points to a slowdown

Japan's index of leading indicators stood at 35 in January, the third straight month for the figure to hold below 50, Cabinet Office data showed. These indicators suggested Japan's economy might lose some steam in the coming months, but analysts doubt there will be any severe slowdown.

A reading below 50 for the index -— which looks at 12 economic indicators that predict future developments — points to a slowdown over the coming half year, while a level above 50 indicates expansion.

The data came amid expectations that the country's economic growth might moderate during the first half of this year, hampered by a decelerating economy in the US, a major overseas buyer of Japanese goods.

Economists do not expect a severe condition even if the economy stagnates as the world economy is expected to regain strength in the later half of the year.

January's leading indicators, as well as other recent data that showed increases in unsold industrial items on manufacturers' shelves and pointed to lower output in the January-March period, cast a cloud over the outlook, analysts said.
Meanwhile, Bank of Japan deputy governor Kazumasa Iwata said the central bank's. February interest rate increase would not impede economic growth.
Iwata also played down the impact of the rate rise on the economy as Japan's interest rates are low, compared with its economic growth rate. He expects Japan's economy to grow by 2% in the fiscal year ending this month.

Iwata said the weakness of Tokyo share prices could hurt sentiment, but it won't damage the overall outlook for the economy.

He said recent developments, such as the unwinding of so-called yen carry trades and the drop in global stock prices, are technical position adjustments.