Malaysian economy grows 5.4pc in Q2

KUALA LUMPUR: The Malaysian economy expanded by 5.4 per
cent in the second quarter of the year compared with four per cent in the same quarter last year driven by stronger domestic demand, Bank Negara Malaysia (BNM) Governor Tan Sri Dr Zeti Akhtar Aziz said today.

Speaking to reporters here today, Zeti said during the quarter, domestic demand surged 13.8 per cent against 9.7 per cent registered in the first quarter.

She also announced a revised 4.9 per cent gross domestic product (GDP) growth for the first quarter.

Zeti said stronger domestic demand was supported by robust growth in the expenditure of both the private and public sectors, while net exports moderated further due to weaker exports and higher imports.



On the supply side, she said, most major economic sectors continued to expand, led by the services, manufacturing and construction sectors.

"This was supported by domestic-driven activity in the services sector, namely communication, real estate and business services and the finance insurance sub-sectors," she said.

She said based on current assumptions, the country would achieve 4.0-5.0 per cent growth this year.

"At this time we will maintain that (the forecast). In the coming budget, there might be some adjustments in the outlook for the year.

"We believe that given the performance in the first-half of this year, it (GDP) will be very likely go up to be at the upper end of that range," she said, adding that private investments would continue to drive economic growth.

Zeti said the pick-up in the investment activities could be seen in an increase of 19.8 per cent in the first quarter of this year and a further expansion of 24.6 per cent in the second quarter.

"This is what we want to happen to sustain our growth, so we are seeing investment making a strong return and even the private debt security market shows that several of the new issues of fund raising in the private debt security were for investment in new projects.

"So all these numbers reflect the improvements in investment activities, in particular by the private sector and also the other projects that were initiated by the government," she said.

She said the improvement in Malaysia's rankings in terms of competitiveness and cost of doing business has indirectly helped the country's investment climate.

Zeti said several large civil engineering projects had also registered strong growth and that would help support economic growth.

These included the RM4.6 billion Sabah-Sarawak gas pipeline project, the RM12.5 billion Ipoh-Padang Besar Electrified Double-Tracking project and the RM5 billion Janamanjung power plant, she said.

"We have also seen higher capacity utilistaion which has now reached the 80 per cent mark. Usually, when this is seen in the various industries, this will result in new investment activities," she said.

On the second-quarter performance, Zeti said, gross fixed capital formation recorded a strong 26.1 per cent growth against 16.1 per cent in the last quarter amid an increase in capital spending by both the private and public sectors.

She said private consumption registered a strong growth of 8.8 per cent (1Q 12: 7.4 per cent), supported by firm labour market conditions, robust income growth and improved consumer sentiment.

"In addition, government initiatives such as financial assistance to the lower-income households and Felda settlers, as well increases in the salaries and pensions of civil servants also supported the increase in spending," she said.

Public consumption recorded an increase of 9.4 per cent from 7.3 per cent in the last quarter, led by higher spending on emoluments and supplies and services, she said.

Zeti said the headline inflation rate moderated to 1.7 per cent in the second quarter against 2.3 per cent in the last quarter.

She said inflation in the food and non-alcoholic beverages category moderated amid a decline in the prices of meat and vegetables.

In the external sector, the current account surplus narrowed in the second quarter to RM9.6 billion, equivalent to 4.4 per cent of gross national income, she said.

"This was due mainly to the lower goods surplus, largely as a result of higher expansion of gross imports amid moderating growth in gross exports," she said.

Zeti said the financial account recorded a turnaround with inflows of RM5.4 billion during the quarter, as net inflows in other investment and foreign direct investment rose, which offset the net outflow of non-resident portfolio funds.

"With surpluses in both the current and financial accounts, the overall balance of payments turned around to record a surplus of RM12.7 billion in the second quarter, against RM7.2 billion in the last quarter," she said.

The Overnight Policy Rate was left unchanged at 3.00 per cent during the quarter under reviewed, she said.

She said the ringgit, on the other hand, was depreciated by 3.8 per cent against the US dollar in the second quarter, along with most other regional currencies.

"Renewed uncertainties over the European sovereign debt crisis and its impact on the prospects for regional and global economic growth prompted some investors to reduce holdings of emerging market assets," she said. -- BERNAMA

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Economic Update 17 August 2012

Gross Domestic Product (GDP) – 2Q12
2Q12 GDP rise 5.4% y-o-y; Robust construction sector

Robust 2Q12 GDP growth - As compared with the prevailing quarter, the Malaysian GDP continually posted strong pace in 2Q12 at 5.2% y-o-y against the revised
1Q12 GDP of 4.9% y-o-y. Such result is above our house forecast and market consensus of 4.6% y-o-y.

Such healthy GDP growth was buoyed by the going on Economic Transformation Programme (ETP) projects, which had mitigated the adverse effect of external
headwind to the nation’s economy.

This is illustrated by the remarkable growth in supply side, which is spearheaded by Construction sector (2Q12: 22.2% y-o-y) and Manufacturing sector (2Q12: 5.6% y-o-y). Meanwhile, the demand side was driven by Gross Fixed Capital Formation (2Q12: 26.1% y-o-y) and Government Final Consumption Expenditure (2Q12:
9.4% y-o-y).

Booming construction sector – In the first half of 2012, the construction sector registered double-digit growth in 1Q12 and 2Q12 at 15.5% y-o-y and 22.2% yo-
y respectively. We view this as positive signs to our economy in preparation to the dwindling external trade in the second half of 2012. We think the jump in
construction sector via ETP projects could minimize the backdrop in external trade for the upcoming GDP quarters results.

Services sector continue to grow – Services sector increased gradually from 5.3% y-o-y to 6.3% y-o-y in 2Q12 to RM100.266b, reflecting the resistance towards
the external headwind effect, which started to drag down trade surplus in 2Q12 to –21.7% y-o-y. However, the domestic economy remain intact, driven by Wholesale &
Retail Trade (+5.9% y-o-y) and Finance & Insurance (+6.6% y-o-y).

Manufacturing sector rose 5.6% y-o-y – Despite the unresolved Euro debt crisis, the manufacturing sector gradually improved to 5.6% y-o-y versus 4.4% y-o-y
previously. This is in line with better exports result in 1Q12 at 4.2% y-o-y, due to the recovery of exports to the US, China and Japan.

This is associated with higher demand on Malaysian exports, especially refined petroleum products, Electrical & Electronic goods and motor vehicle.

Gross Fixed Capital Formation achieved a new high record – In 2Q12, Gross Fixed Capital Formation (GFCF) achieved a new high of 26.1% y-o-y in line with
the robust construction sector and increment in the oil and gas sector.

Government Final Consumption Expenditure (GFCE) accelerated further to 9.4% y-o-y, constituting 11.7% of total GDP, on a mounting expenditure on supplies and services. This is fully reflected in the government’s hike in wages of the civil sector.

Challenging period ahead – We forecast a lower GDP result in 3Q12 of 4.6% y-o-y amid the sluggish external trade outlook and weakening domestic consumption due to the increasing unemployment in the manufacturing sector.