Economist: Malaysia 1Q GDP softens to 5%

Economist: Malaysia 1Q GDP softens to 5%
Business & Markets 2013
Written by Chong Jin Hun of theedgemalaysia.com
Wednesday, 13 March 2013 09:40


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KUALA LUMPUR: Malaysia’s latest set of industrial output and trade data, amid a shorter working first quarter, suggest that economic growth is on track albeit at a slower pace during the period.

Economists said this comes amid cautious sentiment on external volatility in the coming months, prompting expectations that the country’s export growth may be difficult to sustain.

“First quarter (1Q) GDP may have softened to around 5%,” Alliance Research Sdn Bhd economist Manokaran Mottain wrote in a note yesterday.
In the fourth quarter of 2012, the Malaysian economy grew at a faster pace of 6.4%, bringing the full year’s GDP growth to 5.6%. In the 1Q12, Malaysia recorded a GDP growth of 4.7%.

Manokaran said the research house has maintained its forecast of a minimum 5% growth for 2013, driven by sustained strong domestic activities and supported by the continued implementation of Economic Transformation Programme projects.

On Monday, the Statistics Department announced that the nation’s industrial output, as measured by the industrial production index (IPI), rose 4.6% in January from a year earlier on growth in all components of the index.

In December 2012, the IPI rose by a revised rate of 3.5% from a year earlier.

Malaysia’s external trade also improved year-on-year (y-o-y), with January exports rising 3.5% to RM57 billion while imports climbed 16% to RM53.7 billion.

The total trade of RM110.7 billion was 9.2% higher than a year earlier, beating Bloomberg’s consensus estimates of a 1.6% expansion.

Exports grew on higher sales of electrical and electronic products, in addition to petroleum-based goods. Imports climbed as the country purchased 6.3% more intermediate goods during the month. Intermediate items made up 58.5% of total imports.

Manokaran said the rise in intermediate goods purchases, a proxy for future exports, “comes as a much-needed relief”.

This is despite the research firm’s belief that the export sector may stay volatile and vulnerable to global shocks in the near term.

“Therefore, we remain cautious of a sustainable trend ahead, especially in the short term. A major worry remains of easing demand for commodities, including CPO (crude palm oil) and rubber.

“As we have anticipated earlier, demand from EU (European Union) — the fourth largest exporting destination — continued to remain weak (-5.7% in January),” Manokaran said.

Hong Leong Investment Bank Bhd economist Sia Ket Ee said while Malaysia’s latest export growth numbers were in line with those in regional countries, weak world demand will not be able to sustain external sales growth.

This is by virtue of preliminary export indicators from China, South Korea and Taiwan in February, which showed generally weaker numbers.

CPO prices will be closely watched. “Despite a gradual recovery, CPO export price still declined by a hefty 23.6% y-o-y in February (January: -29.5%). Given the high CPO price base in 1H2012 (more than RM3,000 per tonne), we expect softer export prices will continue to exert downward pressure on CPO exports in the coming months. Commodity price continued to remain subdued in February.”

Sia said Hong Leong is reiterating its view that the country’s GDP will expand at a more moderate pace of 4.5% in 2013. This is on lacklustre global demand amid softer commodity outlook.

The economist also anticipates private consumption growth to normalise during the year on stretched household debt, less commodity earnings and waning wealth effect.

“The decade-low trade surplus also lent support to our argument of a shrinking current account, which is not favourable for growth and ringgit performance,” Sia said, adding that the overnight policy rate will remain steady at 3% in 2013.



This article first appeared in The Edge Financial Daily, on March 13, 2013.