Malaysia's GDP Growth Falters to 4% in Q2 2011

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Q2 GDP moderates to 4%

By CECILIA KOK cecilia_kok@thestar.com.my

KUALA LUMPUR: Malaysia's economic growth moderated to 4% year-on-year (y-o-y) in the second quarter (Q2) of the year, after a revised growth of 4.9% y-o-y in the preceding quarter due to a weaker external environment.

The country's gross domestic product (GDP - goods and services produced within the country) growth rate for the three months to June, however, was higher than market expectations of 3.6% based on Bloomberg's poll of 16 economists.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said Malaysia's overall economy continued to be sustained by healthy domestic demand and strong exports of commodity and resource-based products amid slower global growth.

Domestic demand in Malaysia during the second quarter grew 5.2% y-o-y due to sustained growth in private spending.

Private consumption remained healthy amid robust labour market conditions, while private capital spending was sustained by expansion in production capacity and investment in new growth areas.

“Based on the growth we have achieved so far, it is likely that Malaysia's GDP for the full year would expand by at least 5%,” Zeti told a press conference here yesterday. She said it was still too early to revise the country's GDP growth forecast.

Malaysia's GDP for the first half of the year grew 4.4% y-o-y, compared with 9.5% y-o-y in the corresponding period last year. The official GDP growth target for the year was between 5% and 6%.

If there was a need for revision, it would be done during the Budget period in October, Zeti said, while emphasising that the central bank remained watchful and was closely monitoring the global economic developments.

“If we have a situation where the United States and Europe slipped into a recession or any other trigger factors that could result in the disruption in international financial markets, we will have to make a reassessment,” Zeti said.



Bank Negara highlighted the fact that global growth had moderated since the second quarter of the year due to a various factors, including fiscal issues and structural weaknesses in advanced economies and global supply chain disruptions stemming from the March 11 earthquake and tsunami in Japan.

These challenges, as the central bank revealed, were reflected in the slower growth in Malaysia's manufacturing sector at 2.1% y-o-y during the second quarter, compared with 5.5% in the preceding quarter.

Zeti conceded the downside risks to Malaysia's external demand had increased following heightened uncertainties in external demand. In the immediate term, she said, fiscal uncertainties and structural weaknesses in advanced economies would continue to challenge global growth and increase volatility in global financial markets.

“Categorically, we have to say we have a strong domestic economy... our fundamentals are strong enough to support our economy,” Zeti said, stressing that a contraction of Malaysia's economy was not to be expected despite the deepening euro debt crisis and sluggish growth in the United States.

CIMB Research, in its report yesterday, expressed optimism that Malaysia's economy would remain in the positive growth trajectory. The research house said the stepping up of government capital spending in the second half and the continued vigour of private capital spending would sustain the momentum of the country's economy.

“We maintain this year's GDP growth estimate at 5%, implying an average growth of between 5% and 5.5% in the second half, compared with 4.5% in 1H11,” CIMB Research said in its report.

Bank Negara also highlighted that the country's inflation, as measured by the consumer price index (CPI), had eased marginally last month. CPI for July gained 3.4% y-o-y, compared with 3.5% y-o-y.
Zeti said Malaysia's full-year CPI would remain within target of 2.5% to 3.5%.