SWEET SPOT: Malaysia’s economy helped by strong growth
SWEET SPOT: Malaysia’s economy helped by strong growth
KUALA LUMPUR: MALAYSIA has received the thumbs up from foreign analysts and media on how it manages the economy.
Analysts, both local and foreign were stunned on Wednesday following Bank Negara’s announcement that the country was growing at a much faster pace than anticipated.
The central bank backed this, when it announced a 5.4 per cent growth in economic activities between April and June, spurred by the investments in both private and public sector spending.
For the first half of the year, the economy clocked a 5.1 per cent growth.
The strong results, at a time when most economies in the world are suffering, immediately caught the eye of the foreign media.
In recent days, Malaysia’s economy has been described to be in a “sweet spot” helped by strong growth and a subdued inflation trajectory.
The Financial Times noted in an article yesterday that Malaysia’s economy was enjoying a gravity-defying boom that is confounding sceptics.
It further noted that the impetus behind the growth comes from an “Economic Transformation Programme”, initiated by Prime Minister Datuk Seri Najib Razak when he came to power in 2009.
The ETP involves dozens of governmentbacked projects designed to boost per capita income to US$15,500 by 2020, from US$9,600 last year and lift Malaysia out of its “middleincome trap”.
The Financial Times also quoted Christian de Guzman, an analyst at Moody’s, a rating agency, who admitted he was sceptical about the programme’s ability to spur private sector development when it was launched.
But de Guzman is more convinced now, adding that “the proof of the pudding is in the eating, but so far, they are on track. In aggregate, there are just so many things going on (in the economy).”
While sceptics are now begining to take note of Malaysia, local stock market punters have been having a field day thus far this year as the success in the economy is being translated into monetary gains at the stock market. Year to date, the FTSE Bursa Malaysia KLCI, which is up by more than seven per cent to 1649.70 points, is one of the top performing primary equity markets in the world.
The stock market also absorbed successfully the flotation of Felda Global Ventures Bhd, a state-controlled palm oil producer, which was the second-largest initial public offering after Facebook when it raised over US$2 billion last month.
As such, it came as no surprise that it was the domestic demand which drove the gain in the GDP, led by the strongest investment growth in at least a decade with the 26.1 per cent clocked in the second quarter. Firm labour market conditions, income growth and improved consumer sentiment, plus government initiatives such as financial assistance to the lower-income households and Felda settlers and increases in salaries and pensions of civil servants, also led to higher consumption.
This has helped to offset the weakness in export growth for trade-dependent Malaysia, especially with softening demand for the electrical and electronic products and current weak prices for rubber and palm oil.
Construction activities led the growth path, recording a sturdy 22.2 per cent growth during the second quarter.
Construction players are confident that the pace can go on unabated till end 2014, with big ticket projects lined up, including those under the ETP.
MIDF Research economist Anthony Dass pointed out that the imports of capital goods were a leading indicator which showed that infrastructure activities were taking place.
"Even the strong reading of imports for intermediate goods translates into stronger growth for our electrical and electronics sector as it shows that inventories are being built up elsewhere in Asia for the year-end demand for consumer items."
Leading economist Prof Mohamed Ariff Abdul Kareem said the latest data showed the country's resilience in the current environment of weak global growth.
The US economy is growing at a sluggish pace while the European economies have weakened, leading to a modest pace of growth in Asia.
Elsewhere in the region, Indonesia is the other economy which has bucked the growth contraction trend while Singapore, Hong Kong and Taiwan have registered slower growths during the second quarter.
The latest report card by the central bank has prompted most of the research houses in Malaysia and Singapore to revise their 2012 growth outlook upwards.
Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias, who has revised his growth outlook from 4.4 per cent to 5.0 per cent for the whole year, said private consumption was still strong despite headwinds from the external sector.
"Investments will keep the growth momentum going for the next couple of years. These include the Mass Rapid Transit project and the Warisan Merdeka," he told the NST.
But it is not only construction activities which the Malaysian economy can depend on in this current environment.
The low inflation rate in the country, as measured by the official barometer the Consumer Price Index, is at the lowest level in two years with the 1.4 per cent reading for July.
This means that the central bank does not have to be in a rush to cut borrowing costs to spur growth.
Ariff and Cahyadi were both concerned with the step-up in public expenditure given that "fiscal space" is limited.
But Cahyadi said the low inflation rate would provide room for the central bank to inject further monetary stimulus if necessary.
"Which essentially means that the risk of a sharp plunge in growth is minimal at this juncture, even considering the limited fiscal space in the economy."