Zeti: 2014 GDP growth may exceed expectations

by **Cals** Mon 18 Aug 2014, 22:18

Business & Markets 2014

Written by Shalini Kumar & Gho Chee Yuan of theedgemalaysia.com

Monday, 18 August 2014 09:37

KUALA LUMPUR: Malaysia’s economy will likely exceed Bank Negara Malaysia’s (BNM) earlier projection of 4.5% to 5.5% this year and any revisions will be announced in the 2015 Budget speech in October, said BNM governor Tan Sri Dr Zeti Akhtar Aziz.

The country’s real gross domestic product (GDP) growth strengthened to 6.4% year-on-year in the second quarter of 2014 (2Q14), the fastest pace in six quarters, stronger than the 6.2% recorded in the previous quarter. On a seasonally-adjusted basis, the economy grew 1.8% quarter-on-quarter from 0.8% in 1Q14.

The firm growth in GDP for 2Q14 was underpinned by higher industrial export and continued strength in private domestic demand; exports expanded to 8.8% while domestic demand grew marginally to 8.1%.

“Private investment continued to register double-digit growth, expanding by 12.1%, reflecting investment in the services and manufacturing sectors,” Zeti told a press briefing to announce the GDP performance for 2Q14 last Friday.

“Private sector activity will remain the key driver of growth and exports will continue to benefit from the recovery in advanced economies and from regional demand,” she said.

Analysts and economists viewed the GDP performance positively.

In an immediate response on the same day, RAM Ratings Services said it was pushing its full-year 2014 GDP forecast to 5.6% from 5.1% previously.

“Given the upward revision in growth expectations and the build-up of inflationary pressures, we envisage the overnight policy rate (OPR) to end the year at 3.5% — reflecting the probability that negative real interest rates will persist through the second half and the need to anchor further inflationary expectations ahead of the GST (goods and service tax) implementation in 2015,” it said in a note.

Similarly, M&A Securities Sdn Bhd upped its 2014 GDP forecast by 50 basis points to 5.5%.

“Support to Malaysia’s GDP in 2H14 will come from resilient public consumption, especially when jobs creation will remain steady,” it said.

“Other than that, exports will remain Malaysia’s best bet in 2H14, especially when US growth is likely to reach its full potential given that in all likelihood it will reach full employment this year,” it said.

Meanwhile, the headline inflation rate in 2Q14 declined to 3.3% quarter-on-quarter from 3.4% in 1Q14 due to lower inflation in the food and non-alcoholic beverages, housing, water, electricity, gas and other fuels categories.

“Trade recorded a surplus of RM18.4 billion in 2Q14, gross exports grew at a stronger pace of 14.2%, reflecting the continued expansion of global economic activity,” said Zeti, adding that Malaysia’s gross import activities grew 8.6%.

As at July 31, the central bank’s international reserves amounted to RM423.5 billion, sufficient to finance nine months of retained imports and 1.2 times of redefined short-term external debt.

On the outlook for inflation, Zeti said BNM expects a temporary rise in 2015 but it will be normalised in 2016.

When pressed as to whether the GST would contribute to the rise, she said it was too early to comment as the list of tax-exempt and zero-rated goods has yet to be released.

“We will only see the impact of the GST once the list is released,” Zeti said.

BNM is maintaining the OPR at 3.25% but will “continue to monitor any financial imbalances that could undermine longer-term growth prospects of the Malaysian economy,” she added.

This article first appeared in The Edge Financial Daily, on August 18, 2014.