UPDATED Malaysia’s economy expanded by 8.9 per cent in the second quarter from a year ago, but although it beat market forecasts, the writing is on the wall for an entrenched downtrend in the second half of this year.
“In the January to March period of 2010, GDP was 10.1 percent year on year. It is now 8.9 percent for April to June,” an economist at a foreign bank told Malaysia Chronicle.
“The full year forecast is about 6 to 6.5 percent. So all you need to do is average out and you can straightaway tell that from here on, GDP will fall even below 5 percent and it can get even worse if business conditions deteriorate and the government can’t even maintain 6 percent full year growth.”
Prime Minister Najib Razak, who is also the finance minister, had warned of slower growth in the coming months due to the contagion effects from the Greece and Dubai financial debacles.
Malaysia’s economy emerged from recession in the fourth quarter of 2009 when it grew by 4.5 per cent from the fourth quarter of 2008. For the full-year of 2009, it had contracted by 1.7 per cent in 2009 overall from the previous year.
Manufacturing, services, construction still strong
On Wednesday, Bank Negara said higher private and public sector spending had boosted growth while expansion in external demand spurred domestic production.
"On the supply side, major economic sectors continued to record strong growth during the quarter, led by the manufacturing and services sectors," Bank Negara said in a statement announcing the GDP data.
"Going forward, the domestic economy is expected to remain strong, sustained by robust private sector demand."
However, it acknowledged that external developments could result in a moderation in the pace of growth.
The central bank also said the manufacturing sector expanded 15.9% although it was lower compared to the first quarter's 17%. The services sector recorded a positive 7.3% versus the first quarter's 8.5% supported mainly by the strong performance of the wholesale and retail, finance and insurance, transport and storage sub-sectors.
Construction, the other key sector, expanded by 4.1% compared with 8.7% in the first three months, supported mainly by the strong growth in the non-residential sub-sector.
However, the agriculture sector moderated to 2.4% versus 6.8% in the Jan-March period due to lower production of industrial crops, while the mining sector registered a growth of 1.9% (1Q 10: 2.1%) supported by higher production of natural gas amid lower production of crude oil.
Net direct investments still weak
Headline inflation, as measured by the change in the Consumer Price Index, increased by 1.6% on an annual basis in the second quarter (1Q 10: 1.3%). The increase in consumer prices was due to the rise in the prices of food and non-alcoholic beverages (2Q 10: 2.4%, 1Q 10: 1.4%).
In the external sector, the trade surplus narrowed to RM23.4 billion in the second quarter (1Q 10: RM38.9 billion) as gross imports increased faster than gross exports.
Gross exports grew by 21.7% (1Q 10: 30.7%), supported by robust demand for E&E products and sustained demand for non-E&E exports and minerals, particularly from the regional economies.
Meanwhile, gross imports expanded at a robust pace of 30.3% (1Q 10: 35.1%), driven mainly by strong growth of imports of intermediate and capital goods.
On a cash basis, gross inflows of foreign direct investment amounted to RM4.7 billion in the second quarter (1Q 10: RM4.9 billion). After adjusting for gross outflows due to repayment of inter-company loans, net FDI recorded a larger net inflow of RM1.8 billion (1Q 10: +RM0.2 billion).
Bank Negara also said during the April to June period, FDI was channeled mainly into the electrical and electronics as well as petroleum-related industries. Net direct investment abroad by Malaysian companies amounted to RM2.5 billion in the second quarter (1Q 10: -RM3.2 billion), largely for investments in the services and oil and gas sectors.
Meanwhile, there were further inflows of portfolio investments of RM6.6 billion in the second quarter (1Q 10: +RM3.8 billion) due to strong foreign participation in debt securities.
The international reserves of Bank Negara Malaysia amounted to RM309.8 billion (equivalent to USD94.8 billion) as at 30 June 2010, and RM310.6 billion (equivalent to USD95 billion) as at 30 July 2010. It also said its reserves position is sufficient to finance 7.9 months of retained imports and is 4.3 times the short-term external debt.
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