KUALA LUMPUR: Malaysia’s gross domestic product (GDP) grew by 5% in the third quarter, faster than the 4.7% expansion most economists had predicted, as the economy benefited from strong domestic demand and a rebound in exports.
Bank Negara yesterday also revised the country’s second-quarter growth to 4.4% from 4.3% previously. The central bank is maintaining its full-year growth forecast at 4.5% to 5%.
The GDP is one of the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific timeframe.
“Domestic demand remained the key driver of growth, expanding by 8.3%, while exports turned around to grow by 1.7%,” Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said at a press conference.
She noted that emerging signs of a recovery in the major advanced economies are expected to support overall growth.
“For the Malaysian economy, the gradual recovery in the external sector would support growth. Domestic demand from the private sector would remain supportive of economic activity amid the continued consolidation of the public sector,” she said. “Going forward, economic growth is expected to be sustained although risks continue to remain.”
She said the global economic recovery was under way, but with downside risks from uncertainties over the fiscal and monetary adjustments in several of the major advanced economies.
“The other main contributor to GDP is investment, which is even more important as investment activity leads to capacity expansion, and allows our economy to experience future growth,” she said.
Malaysia’s current account surplus for the third quarter jumped to RM9.8bil, equivalent to 4.1% of the gross national income (GNI), from RM1.5bil in the second quarter.
This was mainly due to a higher surplus in the goods account. The GNI comprises the GDP together with income received from other countries less similar payments made to other countries.
She said net exports turned around and posted a positive growth of 1.6% after seven consecutive quarters of declines, driven by external demand, high commodity prices and strong investment activities.
The ringgit also experienced volatility in the third quarter, as expectations for a scale back in the US Federal Reserve’s asset purchase programme prompted a reversal of capital flows from most regional financial markets.
“The volatility was to a lesser extent than what we had seen previously at the height of the global financial crisis. The movement is similar to other currencies,” Zeti said.
She said the foreign exchange market was significantly larger and liberalised now and market players were, therefore, doing the intervention. However, she said Bank Negara would intervene if there were any severe volatility or market disorder.
“The region is in a better position to cope with more volatile conditions, as the financial markets are now larger, better developed and more mature.
“We believe there will not be an exodus out of this region, as our region remains an important growth centre in the global economy and, therefore, we will still be the destination for investment activities,” Zeti said.
The consumer price index was also higher at 2.2% due to higher inflation in the transport and food and non-alcoholic beverages categories.
Speaking on the subsidy rationalisation plans the Government has embarked on, she said the opportunity still existed for these price adjustments to be made gradually.
“We are on a steady growth path, and we have not experienced strong demand that would result in strong inflationary pressures. Therefore, it is a good time to make such adjustments,” Zeti said.
-Bernama/The Star/Asia News Network
Malaysia Economy Outlook 2013
KUALA LUMPUR (Nov 18, 2013): The Malaysian economy is expected to see between 4.6% and 4.7% growth in gross domestic product (GDP) for 2013, according to economists, in line with Bank Negara Malaysia's (BNM) projection of a 4.5% to 5% growth this year.
Alliance Research revised its full-year GDP forecast marginally upwards to 4.6% from 4.5% previously, after BNM released the third quarter (Q3) GDP data on friday which saw a stronger growth of 5% for the quarter on the back of a strong recovery in the external sector, as well as expansion in domestic demand. The research house anticipates a 4.8% growth in Q4.
"While growth may be affected by the recent announcements on the sequencing of certain Economic Transformation Projects and policy reforms such as the subsidy rationalisation programmes, we remain positive that the improving external environment would likely offset the weakness and support growth in the coming quarters," said Alliance Research economists Manokaran Mottain and Khairul Anwar Nor Md in a note.
For 2014, it expects growth to pick up to 5%, underpinned by robust domestic demand and improving external conditions.
RHB Research Institute estimated real GDP to grow at 4.7% in 2013, at a slower pace than the 5.6% growth recorded in 2012.
"Growth, however, will likely bounce back and register a faster pace of 5.4% in 2014, as domestic demand will remain a key driver of growth along side with a further improvement in exports," said its economist Peck Boon Soon.
The central bank said going forward, the gradual recovery in the external sector will support growth. Domestic demand from the private sector will remain supportive of economic activity amid the continued consolidation of the public sector. The economy is therefore expected to remain on its steady growth trajectory.
Meanwhile, BNM Governor Tan Sri Dr Zeti Akhtar Aziz stressed that the current volatility in the financial market is comparatively lesser than that experienced during the global financial crisis.
"We're in a position to cope. We've significant reserves of US$137 billion (RM446.2 billion) and we've many swap arrangements with other banks around the region. The region can come together to respond collectively if there's any crisis.
"Previously (under harsher conditions), we'll probably have a 1% to 2% growth. Now we've rebalanced our economy where domestic demand is an important driver, so it'll allow a 4% to 5% growth," said Zeti.
She said Malaysia's financial markets are larger, better developed and more mature now, adding that financial intermediaries are stronger and more importantly, there is greater diversification of portfolios.
"We believe there's not going to be an exodus out of our region (Asia) and it remains an important growth centre in the global economy. Therefore we'll still be a destination for investment activities," said Zeti.
On the ringgit, she said its volatility is similar to the movements of other currencies.
"We've liberalised the market to allow for unlimited hedging for an unlimited time period to hold a foreign currency account. Our corporate sector is in a better position to better manage their foreign exchange exposure, given that we've seen significant two-way flows. "In the event when the market has a risk of becoming disorderly, the central bank will step in to smooth out that volatility."
However, she said in the medium term, the ringgit should reflect the economy's underlying fundamentals.
"If all remains positive, (ringgit) should see an appreciating trend… but as fundamentals change drastically over a short period of time, then the appreciating should remain in a gradual trend."
Contributed by Ee Ann Nee The Sundaily
Malaysia's 2013 forecast growth revised by IMF
THE International Monetary Fund (IMF) has revised its growth forecast for Malaysia to five per cent for 2013 from its previous projection of 4.7 per cent.
Growth will be underpinned by the domestic demand, with low unemployment and subdued inflation.
In its latest medium-term outlook, which was released following its Article IV Consultation recently, IMF projected growth until 2017 to be between 5.1 per cent and 5.2 per cent.
"Although the domestic demand growth pace is lower than that recorded in 2012, it is still sizeable at over six per cent from 11.6 per cent last year," IMF resident representative Dr Ravi Balakrishnan told the Business Times from Singapore yesterday.
Higher spending by households, firms and the government on consumer and capital goods has offset weak exports to Europe and the rest of the world.
Balakrishnan said Malaysia has done remarkably well and displayed resilience like its neighbours in the face of the global crisis, chalking a 5.6 per cent growth for 2012.
The rebalancing of Malaysia's economy towards greater domestic demand - from its dependence on trade - has led to a significant deterioration in Malaysia's external current account balance, to a surplus of about six per cent of gross domestic product (GDP) last year, compared to 11 per cent in 2011.
The IMF released the details of its annual assessment last Friday together with its first financial sector assessment programme for Malaysia, which endorsed the resilience of the well-capitalised financial sector.
Malaysia's growth story was better than what the IMF expected.
"We are happy with the developments for the near term but there are challenges on the fiscal front for the economy to realise the growth level of 2020."
The government's revenue base needs to shift from the oil and gas receipts, which account for about a third of the total.
The planned goods and services tax would help broaden the revenue base, while the gradual rationalisation of the subsidies programme would help reduce spending pressures while staggering the impact on inflation and incomes.
In the case of investments, he said to sustain the current levels, there must be concerted efforts towards structural reforms, including education to help reduce its skills gap and increase the contribution of human capital.
The report said the Fund welcomed the introduction of a minimum wage this year, which should support the incomes of poorer workers, and recommends considering the introduction over time of unemployment insurance and reforms to the pension system to further strengthen social protection.
Government debt is expected to decline gradually relative to GDP over the next five years, reaching about 51 per cent of GDP by 2017.
The Fund has recommended that there be more "front-loaded" consolidation efforts to reduce the probability of breaching the debt ceiling and ensure the government's goal of reducing debt to 40 per cent of GDP by 2020.
Balakrishnan said while the target to reduce debt is lauded, it is also important that there be more transparency in the concrete measures that Malaysia plans to undertake.
Contributed by Rupa Damodaran Business Times
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