Analisa Dasar (FA)

Malaysia’s Q2 GDP beats estimates

Published: Saturday August 16, 2014 MYT 12:00:00 AM
Updated: Saturday August 16, 2014 MYT 9:59:31 AM
Malaysia’s Q2 GDP beats estimates

KUALA LUMPUR: Malaysia’s economic growth has once again trumped the market, with gross domestic product (GDP) accelerating faster than widely expected – and at the highest pace in six quarters – thanks to strong export growth and robust private domestic demand.

According to Bank Negara, Malaysia’s economy for the three months to June grew 6.4%. A Reuters poll of economists had expected the country’s GDP growth to slow to 5.8% in the second quarter of the year.

In the first quarter of the year, Malaysia’s economy expanded 6.2%, which also took the market by surprise, as the then consensus estimate was for a 5.7% growth.

The strong numbers have thus lifted Malaysia’s GDP growth to 6.3% for the first half of 2014, compared with 5.5% in the corresponding period last year.

This prompted Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz to say that Malaysia’s GDP growth for 2014 would likely exceed the central bank’s forecast range of 4.5%-5.5%.

“Going forward, the Malaysian economy is expected to remain on a steady growth path,” Zeti said at a media briefing on the country’s second-quarter GDP performance in Kuala Lumpur yesterday.

Zeti, however, noted that growth in the second half of the year would likely moderate slightly.

She said the Government would announce a new growth forecast for the year during the upcoming Budget 2015 presentation on Oct 10. Last year, Malaysia’s economy grew 4.7%.

In response to the higher growth rate for the second quarter, Credit Suisse and Bank of America Merrill Lynch (BofAML) yesterday upgraded their 2014 GDP growth forecasts for Malaysia to 5.9% and 5.7%, respectively, from their earlier forecasts of 5.3%.

RAM Rating Services Sdn Bhd also raised its 2014 GDP forecast for Malaysia, saying that resilient domestic demand and strengthening external demand would contribute positively to its revised projection of 5.6%, compared with the initial estimate of 5.1%.

“The mix of growth should shift further towards public investment and exports while private consumption growth should moderate due to a combination of tighter monetary policy, rising inflation and weak farm income,” Credit Suisse said.

BofAML said it expected Malaysia to see private consumption slow in the second half on tighter monetary conditions and further fuel subsidy rationalisation, while public spending would remain muted and export growth moderate.

During the second quarter, private investment in Malaysia grew 12.1%, supported by the services and manufacturing sectors, while private consumption rose 6.5%. Public sector expenditure, on the other hand, fell, with investment falling 3.3% and consumption declining 1.3%. In the external sector, net exports grew 8.8%, while net imports increased 3.9%.

According to Bank Negara, private sector activity would likely remain the key growth driver for Malaysia’s economy in the second half of 2014, while exports may continue to benefit from the recovery in the advanced economies and from regional demand.

Setting a cautious tone, nevertheless, Zeti pointed out: “The overall balance of risks for the global economy remains biased towards the downside due to uncertainty over policy adjustments in the key economies as well as geopolitical developments.

“Persistent geopolitical tensions in Eastern Europe and the Middle East could heighten financial market volatility and weigh down on the ongoing global economic recovery,” she explained.

During the second quarter, Malaysia’s inflation rate, as measured by the annual change in the Consumer Price Index (CPI), moderated slightly to 3.3%, from 3.4% in the preceding quarter.

Zeti said the country’s inflation rate was expected to average around 3%-4% this year, but the implementation of the goods and services tax (GST) by April 1, 2015, would push up the inflation rate temporarily next year.

“But the rate will come down and stabilise in 2016 to a long-term average of 3%,” she explained.

BofAML said Bank Negara would likely raise the benchmark overnight policy rate by another 25 basis points to 3.5% in September on the back of the strong second-quarter GDP growth.

But Credit Suisse said the central bank would unlikely hike the country’s interest rate despite the robust GDP due to a more benign than expected inflation outlook and slowing credit growth.

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