For the first three months of this year, the Malaysian economy grew at 4.2 per cent. It is somewhat curtailed but still within the range of the expected rate, which is between four and 4.5 per cent. It even surpassed the forecast of 4.05 per cent among economists polled by Bloomberg.
On a quarter-on-quarter seasonally-adjusted basis, the economy expanded by one per cent, where it was 1.2 per cent in the previous quarter.
The last time the quarterly data clocked around near the four per cent level was in the first quarter of 2013, where the economy expanded at a slower pace of 4.1 per cent, although the 2013 growth rate had settled at 4.7 per cent. Taking into account the ongoing uncertainties in the current global economic and financial conditions, the figure of 4.2 per cent seems robust and respectable.
But, more crucial would be the data for the second half of this year, which newly-appointed Bank Negara Malaysia Governor Datuk Muhammad Ibrahim has assured would get better.
Like the previous quarters, the overall story of the economy this time around is centred on the resilience of Malaysia’s domestic demand in supporting the economy.
The better than expected growth of private consumption, which expanded to 5.3 per cent from 4.9 per cent in the previous quarter, appears to suggest that consumer sentiment has improved post-Goods and Services Tax and in the aftermath of the subsidy rationalisation effects.
Indeed, the Consumer Sentiments Index survey conducted by the Malaysian Institute of Economic Research has shown an improvement of 9.1 points to 72.9.
This trend is likely to continue, especially with the effect of the 2016 Budget recalibration measures, such as the reduction in Employees Provident Fund contribution by three per cent and the special tax relief of RM2,000, which will take effect in the second quarter onwards.
Furthermore, measures stipulated under the 2016 Budget, such as an increase in the minimum wage, the introduction of the minimum pension rate of RM950 per month, plus a pay rise for civil servants, especially in the lowest grade, to RM1,200 a month will also strengthen Malaysia’s domestic consumption.
All these are crucial not just to boost the purchasing power of the people, but also to address the financial imbalances, that is the household debt level, which now stands at 89.1 per cent of the gross domestic product, among the highest in the region.
Perhaps more needs to be done in these two aspects in the near future.
There is also concern over the growth of private investment in the said quarter, which has slowed down to 2.2 per cent, from 4.9 per cent in the previous quarter.
But again, big infrastructure projects laid down in the 2016 Budget, such as the RM28 billion MRT project, the RM29 billion Pan-Borneo Highway and the construction of houses under the PR1MA programme, can stimulate the growth of private investment.
On the supply side, services and construction sectors seemed to perform better than other sectors, but the main concern here would be the agriculture sector, where it has contracted to 3.8 per cent.
It is time to rejuvenate the primary sector both fundamentally and structurally, as this sector does not just directly deal with the issue of rising cost of living, but also other crucial issues, such as poverty and income inequality. Perhaps it is time for a university, specialising in agriculture and agricultural-related issues, to be reintroduced.
Although the movement of the global crude oil prices has improved, which is now near the US$50 (RM200) per barrel mark, it is still early to be too optimistic.
The appreciation of the ringgit against the greenback in the first quarter has somewhat dented the net trade performance, which contracted to 12.4 per cent. Slower than expected global economic and trade performances this year have also aggravated the situation.
At the Monetary Policy Committee (MPC) meeting held recently, Bank Negara decided to maintain the Overnight Policy Rate (OPR), the benchmark interest rate, at 3.25 per cent. It is apparent that Bank Negara still views this rate as both “accommodative and supportive of economic activity”. It is unlikely that the central bank would apply monetary tools to stimulate growth in the near future.
As United States policymakers hinted at a possible rate hike somewhere next month, cutting the OPR rate would hurt the ringgit even further. Moreover, it will give additional incentive for households to take up more debts and eventually aggravate the household debt level further.
In addition, a possible cut in interest rates would accelerate the build-up of inflationary pressure in the foreseeable time.
Looking ahead, it is crucial for the government to continue strengthening the growth momentum. Growth must be both sustainable and inclusive. For sustainability, fiscal prudence must be on top of the agenda whereas for inclusiveness, the bottom 40 (B40) and the middle 40 (M40) of the segment of the society must be given utmost priority.
Dr Irwan Shah Zainal Abidin is senior lecturer at the School of Economics, Finance and Banking, Universiti Utara Malaysia