Saturday, 27 February 2010

theedge: Malaysia out of recession

Written by Chan Kok Leong & Chong Jin Hun    
Thursday, 25 February 2010 12:33


PUTRAJAYA: The economy rebounded from a recession, expanding by an annual rate of 4.5% in the fourth quarter (4Q) of last year, following three consecutive quarters of contraction in the gross domestic product (GDP).

Policymakers said the outlook for the economy, which grew above market estimates, remained bullish this year and Prime Minister Datuk Seri Najib Razak expressed his hope of seeing the nation achieve a higher GDP growth than earlier expected.

“The earlier forecast was 4% for this year but I’m hoping we can achieve one or two percentage points more. We are going all out and we hope to generate confidence through speedy implementation of projects and encourage the private sector to invest.

“With higher confidence, we should have a good year in terms of economic performance,” Najib told reporters here yesterday at a memorandum of understanding signing ceremony involving Felda Holdings Bhd, Rubber Industry Smallholders Development Authority, and Felcra Bhd.

Najib said the economy was out of the woods, and barring any unforeseen circumstances, the country has recovered from the crisis and should be looking forward to steady growth in 2010.

Asked if Malaysia was now “out of the woods”, Najib said: “Yes, provided that nothing seriously unexpected happens with regard to the global economy.

“For example, any major sovereign (fund) collapse... Barring any unforeseen circumstances of that nature, we have recovered from the crisis and should be looking forward to steady growth for 2010,” said Najib, who is also finance minister.

He said the new monitoring unit established by him had made a key difference to spur the recovery. This was by virtue of the unit’s engagement with ministries and central agencies to ensure that their programmes under the government’s two stimulus packages could be implemented speedily.

“One of the main reasons why we were able to spend RM1 billion per month for 2009 was because we have a special  monitoring unit attached to the ministry of finance. This was not in existence before,” he added.

Public sector spending rose 1.3% in the fourth quarter while development expenditure rose 9.5% to RM17.6 billion from the previous corresponding period.

Of the RM17 billion for 113,000 projects under the stimulus packages, a total of RM13.9 billion has already been spent. “This amounts to roughly RM1 billion a month flowing into the system since January 2009,” Najib said.

Recovery aided by domestic demand and exports
Bank Negara Malaysia (BNM) said the 4.5% GDP expansion in 4Q was helped by an improvement in domestic demand and exports. On the supply side, all economic sectors registered growth, except for mining.

The central bank said the improvement in the second half of last year was expected to gain further momentum this year.

“Higher domestic demand, particularly private consumption spending, is expected given the stable labour market conditions, improved consumer and business confidence and continued access to financing.

“Further improvements in external demand, following the gradual recovery in the global economy, is also expected  to provide further impetus to the domestic economy,” BNM said.

The 4Q numbers translate into a full-year GDP contraction of 1.7% in 2009. In quarterly terms, 4Q numbers expanded  2.2% from the preceding third quarter.

According to BNM, private and public consumption rose by a yearly quantum of 1.7% and 1.3%, respectively, in 4Q while exports climbed 7.3%.

On the supply side, the construction sector grew the most, expanding by an annual pace of 9.2%, followed by the  agriculture industry with a 6% rise. The manufacturing and service sectors grew 5.3% and 5.1%, respectively, while  the mining industry registered a 2.8% decline.


Sustainability remains to be seen
Kenanga Investment Bank Bhd economist Wan Suhaimie Saidie said the country’s economic fortunes were still subject to external risk from developed countries such as the US which was still seeing a high jobless rate.

At the same time, our policymakers needed to address certain structural issues, including the education system.

“The key point is whether the local economy is sustainable going forward,” said Wan Suhaimie, who has raised his GDP forecast for Malaysia to a 4.3% growth in 2010 from 3.5% previously. For 2011, he is looking at a growth of 5.3%.

Wan Suhaimie said the latest GDP numbers were “unexpectedly high” due to a low-base effect. He added that the country needed to have a balanced growth in investment and external demand to sustain its fortunes going forward.

The market had expected the 4Q GDP to grow by an annual pace of 3.4%, according to estimates by economists polled by Bloomberg.

The economy contracted by a smaller annual pace of 1.2% in 3Q of 2009 although it grew 5.7% in quarterly terms.

In 2Q, GDP contracted by 3.9% year-on-year (y-o-y) but registered a 4.8% expansion quarter-on-quarter (q-o-q), while 1Q GDP declined 6.2% y-o-y and shrank 7.7% q-o-q.

The economy expanded by 4.6% in 2008.

Government estimates indicate that the country would have registered a GDP contraction of 3% in 2009, compared with earlier estimates of a 4%-5% decline. In 2010, the country is expected to register an economic expansion of 2%-3%, according to the prime minister’s budget speech.

The government’s fiscal injections include two economic stimulus packages with a combined value of RM67 billion to boost domestic demand against a landscape of falling exports.

BNM governor Tan Sri Dr Zeti Akhtar Aziz had said last Monday that the country was on the path of recovery and that it had come out from “extraordinary circumstances”.

Zeti also said any increase in interest rates should be seen as a normalisation of lending rates instead of a tigthening  initiative.

The nation’s exports rose by an annual rate of 18.7% to RM54.7 billion in December last year, helped by higher sales of electrical & electronic, and petroleum-based products. Imports, meanwhile, posted a yearly increase of 23.3% to RM42.6 billion as more intermediate goods were bought from abroad.


Inflation continues to rise
Meanwhile, the country’s inflation, as measured by the consumer price index (CPI), rose by an annual quantum of 1.3% in January 2010, mainly due to costlier food and non-alcoholic beverages, besides more expensive housing, water, power and fuel. Transport cost also increased during the period.

According to a statement on the Department of Statistics website, these components, collectively, accounted for 59% of the 1.3% increase in the CPI.

Compared to the preceding month, January’s CPI rose 0.2%, mainly the result of costlier education besides clothing and footwear.

Malaysia’s inflation rate turned positive after rising by an annual pace of 1.1% in December last year, the first  time, following six consecutive months of negative consumer price numbers.

At its first Monetary Policy Committee (MPC) meeting for the year last month, BNM had maintained the key interest rate at 2% for the seventh consecutive time since April 2009.

The central bank had slashed the overnight policy rate or OPR by a collective 150 basis points since November 2008. One basis point is one-hundredth of a percentage point or 0.01%. The MPC’s next meeting is on March 4.


This article appeared in The Edge Financial Daily, February 25, 2010.

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