Malaysia 2Q GDP likely to beat growth in 1Q

by **Cals** Fri 15 Aug 2014, 23:06

Business & Markets 2014

Written by Levina Lim of theedgemalaysia.com

Friday, 15 August 2014 09:12

KUALA LUMPUR: Malaysia’s economy is seen to have grown at a faster pace in the second quarter of this year (2Q14), thanks to the weaker ringgit which boosts exports.

Some economists predict that 2Q gross domestic product (GDP) growth most likely surpassed the 6.2% achieved in the first quarter (1Q14). Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz is due to announce the 2Q GDP growth rate today.

“It will definitely be better than 2Q13’s GDP growth of 4.3%, and it could reach as high as 6.3% because exports growth have been strong due to the currency effect,” Rosnani Rasul, head of research at M&A Securities Sdn Bhd, told The Edge Financial Daily yesterday.

“The ringgit weakened to a low of 3.27 against the US dollar in January. As it takes a few months for the currency effect to trickle down to result in export competitiveness, export numbers in 1Q and 2Q of 2014 have been very good,” she said.

“GDP growth in 2Q could match 1Q’s, as the export average in 2Q was very high compared with 1Q. Nonetheless, economic performance (in 2Q) could be weighed down by the absence of targeted financial assistance unlike 1Q,” she said.

Still, Rosnani predicts that the export average in the second half of 2014 will be lower than the first half due to higher capital inflows, resulting in a stronger ringgit.

“There have been a lot of capital inflows into the equity market, and we have traditionally seen a strong correlation in capital inflow with the ringgit’s performance.

“The 2Q capital inflows have been good, and we have seen a major reversal [to the prior capital outflows]. Hence, from June to August, the ringgit has strengthened,” she added.

RHB Research Institute Sdn Bhd economist Peck Boon Soon expects 2Q GDP to be marginally higher than 1Q.

“The global economy is also starting to turn around. Electrical and electronic equipment exports from Malaysia have continued to strengthen in 2Q compared with Thailand or Singapore which did not see a similar level of recovery as Malaysia’s,” he said.

Additionally, he said wholesale and retail trade indicators point towards a stronger performance in 2Q compared with 1Q, reflecting the continued strength of consumer spending.

“Similarly, although construction growth may have slowed to single-digit levels, it is still experiencing high single-digit growth.

“This continues to drive Malaysia’s economy in 2Q,” he said, adding that the recently released Industrial Production Index had strengthened compared to the previous quarter.

Meanwhile, economists polled by Reuters expect Malaysia’s GDP in 2Q to rise only 5.8% from a year ago, as export growth eased and consumers begin to feel the effect of BNM measures to rein in household debt.

According to the poll, the economy is likely to expand 5.5% in 2014, higher than previously expected, after strong exports and solid industrial production lifted growth in 1Q14.

“Exports, especially electronics, have supported the growth momentum, although volatility in oil and gas exports has affected trade,” said Reuters, adding that exports grew 18.9% in April buoyed by strong demand for electronics, before slowing to 7.9% in June.

It added that the hike in the overnight policy rate to 3.25% from 3% in July will cool consumer lending somewhat, and that the disappearance of Malaysia Airlines flight MH370 has had a negative impact on the services sector, as Chinese tourist arrivals slumped in the wake of the tragedy.

This article first appeared in The Edge Financial Daily, on August 15, 2014.