Thursday, February 13, 2014

Malaysia's Growth Intact

Malaysia's growth intact, GDP boosted by rising exports and investments

PETALING JAYA: Malaysia’s economy grew 5.1% year-on-year in the final quarter of 2013, exceeding market expectations of a 4.8% rise.

Economists were encouraged by the set of data released by Bank Negara and theStatistics Department yesterday and attributed the improvement in the health of the economy to the exports and continued strength in private investments.

They felt this development boded well for the country’s outlook amid volatility in the capital markets over the last six months.

For the entire year, economic growth as measured by the gross domestic product (GDP) rose 4.7%, matching market expectations. Compared with the preceding quarter, GDP grew by 2.1%. The national current account, reflecting the balance of trade, continued to improve.

“We’re very encouraged by the rise in private investments, as this underscores the fact that private sector investments will continue to be a big contributor to GDP for years to come,” CIMB Investment Bank Bhd economic research head Lee Heng Guietold StarBiz.

He said the main drivers of investment growth continued to be the implementation of the Economic Transformation Programme projects and relatively low borrowing costs. “Yes, we expect interest rates to gradually move up this year, but it will still continue to be supportive of growth,” Lee added.

According to a statement by the central bank, private investments rose 16.5% in the fourth quarter (from 15.2% in the third quarter) on account of higher capital spending in the services and manufacturing sectors, while public investments continued to fall, declining 2.7% year-on-year in the fourth quarter from the 1.3% drop in the previous quarter. Overall, gross fixed capital formation grew 5.8% in the fourth quarter versus 8.6% in the previous quarter.

Alliance Research chief economist Manokaran Mottain (pic) said that on balance, most economists had been overly bearish, especially when the national current account narrowed in the middle of last year.

“We should not be overly concerned with blips in leading indicators in a given month, as one month’s worth of data is not enough to seriously impact economic performance,” he pointed out, explaining that a drop in purchasing managers indices (PMIs) in a given month should not be a cause for alarm. PMIs are leading indicators for manufacturing activity.

On the trade front, exports grew 2.4% last year to RM719.81bil, while healthy domestic demand stemming from manufacturing activities, capital formation through growing investments as well as higher consumption ensured imports rose 7% to RM649.19bil.

Due to the growth in exports, the national current account balance improved to RM16.2bil in the quarter under review (from RM9.8bil in the third quarter) versus the median expectations for the balance to improve to RM17.5bil.

Manokaran expects the ringgit to end this year at 3.30 to the US dollar, with periods of volatility around Federal Open Market Committee meetings when statements on further cutbacks to the quantitative easing programme would be announced. To-date, the US Federal Reserve has cut back US$20bil from the US$85bil-a-month programme.

Economists expect private consumption to moderate this year on the back of further fuel subsidy cuts, following the rise in electricity tariff rates and the abolishment of the sugar subsidy. “Consumer spending will still hold this year although households will continue to adjust, but we don’t expect consumption to pull back sharply,” Lee said.

For the fourth quarter, private consumption moderated to 7.3% from 8.2% in the previous quarter, while lower government spending on emoluments saw public consumption moderate to 5.1% from 7.8% previously.

Bank Negara said on the supply side, growth was supported by the major economic sectors, with services growing in tandem with the improvement in trade and manufacturing activities. The manufacturing sector expanded further, supported by higher growth in both the export- and domestic-oriented industries.

Activity in the non-residential and residential sub-sectors continued to support construction sector growth, but the commodities sector weakened due to lower production of rubber, palm oil and crude oil.

Credit Suisse AG economist Santitarn Sathirathai expects another year of robust GDP growth this year, although the mix in contribution to growth would likely shift towards investment and away from consumption.

He noted that in order for real GDP growth to hit 5% this year, quarter-on-quarter growth would need to average 1%.


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