Highlight BNM lowers 2013 GDP forecast

by **Cals** Thu 22 Aug 2013, 10:58

Highlight BNM lowers 2013 GDP forecast
Business & Markets 2013
Written by Kamarul Anwar of theedgemalaysia.com
Thursday, 22 August 2013 10:50

KUALA LUMPUR: Prolonged weakness in the global economy, which has affected Malaysia's GDP growth in the first half of 2013 (1H13), has prompted Bank Negara Malaysia (BNM) to revise downwards its GDP forecast for this year to 4.5% to 5% from 5% to 6% earlier.

Malaysia's 1H GDP averaged 4.2%, which was significantly lower than the 5.4% registered in the same period last year and below the consensus estimate of 4.7%. The local economy grew 4.3% in the second quarter (2Q) and 4.1% in 1Q.

BNM governor Tan Sri Dr Zeti Akhtar Aziz said while the GDP forecast was revised downwards, the recovering global economy will help improve Malaysia's export performance in 2H13.

"We expect the GDP to fare better with the recovery in the global economy, and our export performance will improve. Our assessment is that we will be doing better in 2H of this year," she told a media briefing after releasing Malaysia's 2Q GDP figures yesterday.

Zeti said Malaysia's exports contracted further due to the weak global demand for electrical and electronic products and the lower prices of major commodities. "This affected our overall growth performance," she said.Malaysia's current account surplus — the difference between a country's total exports of goods, services, and transfers and its total imports — fell to RM2.6 billion in 2Q from the preceding quarter's RM8.7 billion. This was due to lower goods surplus, sustained services deficit and outflows in the income accounts.

The 2Q also saw the financial account recording a net inflow of RM5.2 billion, against RM1 billion in the preceding quarter. This largely reflected banking inflows amid sustained direct investment by foreign multinational corporations.

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Except for the agriculture sector which grew 3.1% in 1H (2012: -1.3%), the mining, manufacturing, CONSTRUCTION [] and services sectors showed slower growths of 1% (2012: 1.2%), 1.9% (5.1%), 12% (18.5%) and 5.4% (6.2%), respectively.

UOB Group, in an immediate comment, said sluggish exports continued to weigh on the GDP in 2Q, as it contracted by 5.2% year-on-year (y-o-y). Weaker imports also reflected some moderation in private consumption demand during the quarter.
"Nonetheless, overall consumption strengthened in 2Q13 as the moderation in private consumption was more than compensated by sharp growth in government spending, which was mainly due to higher expenditure on supplies and services as well as higher wages.

"Despite the slower fixed investment growth of 6.0% y-o-y in 2Q13 compared to 13.1% in 1Q, we are comforted by the breakdown showing that the private sector's fixed investment has actually improved. We expect investment activities to continue to pick up in the second half following May's general election."

UOB Group said its projection still suggests some strengthening in growth in the next two quarters, with some recovery in external demand expected to provide some boost. Domestic demand will continue to be supported by growth in wages and a stable employment outlook.

Zeti, meanwhile, said the country could look at several measures to increase the shrinking current account surplus, and not solely depend on the recovery in external demand. These include increasing the country's competitiveness and diversifying its export markets.

Malaysia's inflation rate in July stood at 2%, which was within expectations of between 2% and 3%. UOB Group described headline inflation as modest.

"While inflation could edge higher in the coming months, we expect full year inflation to average 1.9%, down from our earlier forecast of 2.2% as inflation was just 1.7% in the first seven months. Weak growth and low inflation are expected to keep BNM on hold at 3.00% for the rest of this year," it added.

This article first appeared in The Edge Financial Daily, on August 22, 2013.