Supportive outlook for M’sian economy in latter half of 2012

DOMESTIC STRENGTH: Despite the global unrest involving the eurozone crisis and also the rise in crude oil price during the start of the year, Malaysia’s GDP remains strong, backed by domestic growth and driven by the private sector.

Leslie Tang

KUCHING: With Bank Negara Malaysia (BNM) announcing a sound 4.7 per cent growth in gross domestic product (GDP) for the first quarter of 2012 (1Q12), analysts are generally supportive of the future outlook for Malaysia’s economy on the back of strong domestic demand.

According to Leslie Tang, an Asian economist at OSK DMG’s Economics Research department, growth in 1Q12 was primarily driven by domestic demands, particularly investments for the Economic Transformation Programme (ETP) and infrastructure projects like the Mass Rapid Transit (MRT).

“Investment expenditure rose nearly doubled that of 4Q by 16.1 per cent y-o-y,” he noted.

“Private consumption remained resilient, rising 7.4 per cent y-o-y in 1Q, little changed from 4Q. Government spending did not keep pace with the double-digit growth of the previous two quarters, instead expanding by a slower 5.9 per cent y-o-y in 1Q.”

Nevertheless, the moderation to 4.7 per cent year-on-year (y-o-y) in 1Q12 showed some form of hampering from weakness in the external sector, compared with 5.2 per cent in the final quarter last year.

TA Securities Holdings Bhd economist, Patricia Oh, said despite the global unrest involving the eurozone crisis and also the rise in crude oil price during the start of the year, Malaysia’s GDP had remained strong, backed by domestic growth and driven by the private sector.

In part, the growth of private consumption stayed strong supported by the continued rise in income and healthy labour market condition, she noted.

“Private investment had expanded due to the implementation of projects particularly in the oil and gas segment,” she added. “Separately, the public investment was mainly directed towards the trade and industry such as public utilities; transportation and mining sectors.

“As for the supply division, we gather that the services and manufacturing sub-segments of GDP had moderated owing to the softer trade-related activities. On the other hand, the construction segment had benefited in tandem with the implementation of development projects and the continued boost in the domestic segments of the economy.”

Malaysia was able to retain financial stability throughout 1Q12 owing to the supportive macro environment, orderly financial market conditions and sound financial institutions.

While domestic economic fundamentals stayed intact, Oh highlighted volatilities in the external front might post challenges ahead.

“We generally believe that Malaysia remains on firm footing to date. Hence, we are maintaining our full year GDP growth projection at 4.6 per cent for 2012 pending on a briefing update by the Department of Statistics,” she opined.

Meanwhile, OSK-DMG’s Tang believed that stronger government spending in the quarters ahead plus the continued resilience in domestic demand should be able to mitigate the weakness in external demand.

“We expect greater government spending on cash handouts (including civil service pay increases and payouts to Felda farmers and so on) and accelerated spending on infrastructure and Economic Transformation Project-related projects ahead especially in the lead up to the general elections.

“We think that 1QGDP represents the bottom, and stronger growth is likely ahead. We are maintaining our real GDP growth outlook at 5.2 per cent for 2012 for the moment,” he concluded.

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