KUCHING: Against the backdrop of an uncertain global economy and the still unresolved eurozone sovereign debt this year, the Malaysian economy saw resilience during the first quarter of 2011, growing 5.1 per cent in terms of Gross Domestic Product (GDP).
During a Corporate Economic Briefing organised by The Malaysian Institute of Economic Research (MIER) and Sarawak Development Institute (SDI) held at a leading hotel yesterday, MIER executive Director, Dr Zakariah Abdul Rashid informed that Malaysia is facing a challenging economic landscape at the time being until at least after the General Election (GE) is held, adding that the country would be able to have a more solid perspective of the economy movement after knowing the result of the GE.
He reasoned that the forecast for Malaysia economy was affected by downside risks such as the faltering of economic recovery in the advanced nations; sustained higher oil prices; severe food supply disruptions; hard economic landing in China; domestic demand falters and political uncertainty.
“Looking at 2011 overall, it was government spending that kept the Malaysian economy tagging along nicely. It grew 16.8 per cent compared to just 0.5 per cent in 2010. Private consumption, because of its large share of real GDP, also played an important part.
“It expanded 6.9 per cent in 2011 compared to 6.5 per cent in the previous year,” he said.
The country’s economy continued to depend on domestic demand that were supported by both private and public sector spending to drive GDP growth against a backdrop of bleak economic developments overseas.
Although the year-on-year private consumption slipped marginally, public sector consumption grew significantly in the second half of the year to keep 2011’s real GDP growth above the five per cent level.
Dr Zakariah also stated that domestic demand played an increasing role in supporting Malaysia’s real GDP growth in 2011, whereby private consumption was the largest contributor at 71.3 per cent, followed by public consumption at 43.8 per cent.
On the other hand, he that for the first two months of 2012, data from MIER revealed that the Industrial Production Index (IPI), which is a leading indicator that correlates to GDP to show where the economy is heading, showed an overall good result thus far.
He also disclosed that Malaysia’s Foreign Direct Investment (FDI) had seen a decline since the country became more selective in its FDI stance, due to the inevitable unhealthy environment that have polluted the economy.
“In previous years, Malaysia want to attract as many FDI as possible and to make them attractive, we offer many attractive packages for the investors such as low labour wages but this situation have an implication on the environment. It polluted the country with cheap labour cost, thereby attracting more foreign workers and others,” he said, adding this was not what the economy wanted nowadays.
“Our nation’s FDI is experiencing an outflow greater that the inflow, meaning Malaysia’s investors are investing abroad and not within the country. The problem to us is why people are investing abroad now. So, there must be a balance in this situation,” he said adding t hat Ministry of Industrial Development Authority (Mida) was in charged of this and they need to change the situation if Malaysia is looking become a developed nation with high income economy by the year 2020.
The MIER executive director also talked on the inflation side of the economy to which he said the level was currently at a controllable stage at 2.7 per cent, reasoning that inflation rate is generally caused by the rise of crude oil prices in the world and it cannot be avoided.
“What happens to the world crude oil price sips into the whole value chain of the production and it affects every consumers. Inflation also happens as a consequence of monetary issue such as the debt crisis in Europe and United States,” he said.
Despite all these risk forces, Dr. Zakariah predicted the Malaysian economy would be more stable by the second quarter of this year with a GDP of 4.2 per cent.