Malaysia's GDP Growth 5.1% in 2011, pretty okay?

Malaysia's growth beats consensus

By FINTAN NG fintan@thestar.com.my

PETALING JAYA: Malaysia's gross domestic product (GDP) expanded by 5.2% in the fourth quarter of 2011 despite the challenging external environment as domestic demand continued to support growth.

Bank Negara said in a press statement that full-year growth came in at 5.1% after expanding 7.2% in 2010 as domestic demand conditions remained favourable supported by both private and public sector spending.

The fourth-quarter GDP figures came in slightly higher than the 4.8% median estimate in a Bloomberg survey while the full-year growth was largely in line with a separate survey, where the median estimate was 5% and in line with official estimates of 5% to 5.5% growth.

“Domestic demand expanded by 10.5% during the quarter, driven by the continued expansion in household and business spending, and public sector expenditure,” the central bank said.

Private comsumption increased by 7.1% supported by favourable income growth while public consumption rose by 23.6% following higher expenditure on emoluments and supplies and services.

Gross fixed capital formation, which measures the net increase of fixed or physical assets, increased by 8.5% supported by continued expansion in capital spending by the private sector and the non-financial public enterprises.

“The federal government development expenditure during the quarter was mostly channelled into the transportation, trade and industry sectors,” the central bank said.

The services sector grew by 6.4% for the quarter (6.8% for the year), manufacturing expanded by 5.2% (4.5%), construction rose 6.4% (3.5%), agriculture expanded by 6.9% (5.6%) while the mining sector's pace of decline narrowed compared to the third quarter, falling by 3.3% and declining 5.7% for the year.

The headline inflation rate, as measured by the annual change in the consumer price index, declined to 3.2% in the fourth quarter with inflation in the transport category ower at 3.2% reflecting the absence of further adjustments on prices of RON95 petrol, diesel and LPG in the quarter.



“Inflation in the food and non-alcoholic beverages category, however, rose to 5.3% during the quarter, mainly due to higher prices in the fish and seafood subcategory,” Bank Negara said.

Economists said the latest data confirmed earlier reports of the country's growth being on a slower trend largely due to the drop in external demand as global growth slowed.

They said this trend would continue into the first half of this year before recovering gradually in the second half as conditions globally improved with more clarity on the issues surrounding the eurozone sovereign debt crisis.

CIMB Investment Bank Bhd economic research head Lee Heng Guie told StarBiz that the main drag to growth in the fourth quarter and the whole year was the volatile external environment which resulted in stagnant demand for consumer electronics.

He said domestic demand would continue to sustain the economy although there was “a slight let-up” in consumer spending. “The question is how sustainable is consumption going to be and this will depend on key drivers such as commodity prices and income,” Lee said, noting that the Malaysian Institute of Economic Research consumer sentiments index was trending down.

“In summary, we see quite uneven growth in the first half of this year before the economy picks up in the second half,” he said, expecting full-year GDP to come in at 3.8%.

AmResearch Sdn Bhd director of economic research Manokaran Mottain said the latest data showed that the “fear factor” was rising with households becoming more cautious about spending.

However, he was more sanguine compared to his peers where exports were concerned, pointing to the export growth in goods and services (where the current account suplus, although narrowing in the fourth quarter, stood at RM22bil for the year) but said the data showed the economy was geared to domestic activity with government handouts playing a crucial role in supporting consumption.

“Going forward, well-crafted domestic strategies and the timely rollout of the Economic Transformation Programme projects will now be more urgent as they will create multiplier effects especially in the services sector,” Manokaran said.

He added that the data clearly showed that the economy, while experiencing moderating growth, was not “falling off the cliff” with full-year growth in 2012 coming in at 5%. “The worst-case scenario is global growth dropping to below 3% and project implementation delays at home, which means growth of around 4%,” Manokaran said.

Meanwhile Affin Investment Bank Bhd chief economist Alan Tan said growth this year would still be affected despite signs of nascent recovery in the United States and the improvement in global purchasing managers' indices.

“For this year, the first half will still show signs of moderation in exports as consumer electronics demand slows down,” he said, adding that growth for the full year would still be a healthy 4% considering the challenges.

For Bank Negara statements click here

Malaysia should do pretty okay

Making a Point - By Jagdev Singh Sidhu

THE report card for the economy in 2011 is out and by all accounts, Malaysia did pretty okay.

With the official forecast of growth at between 5% to 5.5%, there was much scepticism throughout 2011 whether that could be achieved. Who can blame the tea-leave readers out there whose job is to forecast where the economy is heading?

There was so much external fear with Europe on the brink, America seeing greater economic trouble and China teetering on a bubble bursting that expectations were slashed, and on average far less than what the Government had predicted.

As it turns out, maybe after the gravity-defying performance in the third quarter where the gross domestic product (GDP) expanded by 5.8%, people began to say “hold on. Maybe things aren't so bleak.”

As it turns out, they were mostly right when the GDP data was released yesterday.

The economy expanded by 5.2% in the fourth quarter and for the whole year, growth was 5.1%. There are numbers where things could be better. Industrial production and export growth isn't the best.

 

But what drove the economy upwards was domestic demand, basically what the Government, people and companies spend and invest.

Domestic demand jumped 10.5% in the fourth quarter compared with 9% in the third. Capital investments surged 8.5% compared with 6.1% in the previous quarter and higher investments will mean more production, jobs and better economic strength.

The troubles of Europe might have lost its fear factor and America appears to be repairing itself steadily. There are reasons to be more optimistic but the official tune has turned, surprisingly, a little sour.

Bank Negara in its statement said; “Growth prospects, however, have become increasingly uncertain with the emergence of greater downside risks.”

The warning calls for more caution but there is still enough policy measures to keep domestic demand intact.

There are policies of putting cash in the hands of the people through direct cash handouts. There is a base effect from the consumption boom to worry about and whether that can continue into 2012.

But there are indicators out there to suggest domestic demand might still do well but maybe not at the same breakneck speed.

First, there is the stock market. Yes, people might say its not a perfect barometer of what an economy is doing but it does show there is confidence in how corporate Malaysia might be performing.

With direct investments abroad by Malaysian companies jumping to RM14.4bil in the third quarter from RM12.9bil previously, it shows Malaysian companies are taking advantage of growth opportunities outside Malaysia. That can point to higher profits and maybe salaries in the future.

The other is property. We might have been cautious last year about property prices falling off the cliff at some point in 2012 but there is no indication that might happen. Prices might soften but if we were to see our neighbours down south, it might not freeze the market.

For January, Singapore registered the highest sales of private homes in the past 14 months, despite increasing clamps on foreigners buying homes there.

With jobs steady and likely to increase with more investments being made, the stock market doing alright and property prices holding firm, these are ingredients that will allow people to continue spending.

If the Private Sector Retirement Age Bill gets passed, that should create more consumption by people whose earnings lifespan will increase by a further five years. The mass rapid transit system which is kicking off will also boost construction and the GDP.

Economists do wonder if the growth forecast of 5% to 6% for 2012 will be maintained given the risks and challenges. There might be a revision downwards in March but whatever the case, Malaysia like last year, should do pretty okay.

● Deputy news editor Jagdev Singh Sidhu is lapping up the Linsanity! Jeremy Lin's play for the New York Knicks has been a fantastic story. Hope that continues until he meets the Detroit Pistons.