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Economy Stabilises After Round Of Cooling
Malaysia Perspective | 26 February 2013

By Yang Ming Wan

As we venture into 2013, the Malaysian economy is expected to grow steadily through infrastructure developments in the wake of the upcoming general elections.

Prior to the announcement of the polling date, the Government will be relying on stimulating domestic consumption to provide fuel for economic growth in the face of uncertainty overseas. The economy did in fact achieve the 5% growth target set by the government for 2012; however, the threat of over-consumption also prompted the government to impose cooling measures.

The segment that raised the most concern was domestic loans, especially household loans. After a series of curbs imposed by Bank Negara, the figures released lately showed a marked cooling of the loans take-up rate.

Loans Growth Expected To Slow Down This Year
According to the monetary and financial development report published in December 2012 by Bank Negara, bank loan growth has slowed down across the board from the almost-14% level for the few months in 2011 to between 12% to 13% in the first half of last year, before hitting a low of 10.4% last December.

With loans growing at barely 10% in December and other leading indicators such as loan application and loan approval showing similar signs of softening, the growth rate of bank loans in 2013, or at least the beginning of the year, is likely to slow further to dip below 10% into the single-digit territory.

Loan application and approval at the local banks have been declining for three consecutive months: both figures have slipped further south from October’s growth rates of -0.4% and -0.1% respectively to -19% and -4.1% in November.

By December, both the figures for loan application and approval have contracted into double-digit territory, at -14.6% and -21.1%, respectively.

Even though the loans curb imposed by Bank Negara was aimed at household loans, effectively dampening demands on all types of home loans including mortgage, car, credit-card debt and personal loans, commercial and industrial loans also suffered collateral damages and slowed down at a faster rate than family loans, from a growth of over 14% in the middle of last year to just 10.9% by the end of the year.

In contrast, household loans slowed marginally from a mid-year growth figure of about 12% to 11.6% in December.

Bankruptcies Hit A New Record
Another reason why the movement in commercial and industrial loans is more pronounced is the uncertainty over when the general elections will be held; unpredictable swings in oversea demands have also cast a shadow over where businesses and industries are headed to, which prompted companies to adopt a wait-and-see attitude.

On the other hand, with the government stimulating domestic demand by encouraging domestic consumption as well as infrastructure development, Malaysia’s economy looks set to achieve a stable growth of more than 5%. Even though the total number of cheques cashed in nationwide last year remained steady at over 200 million transactions, a figure that was maintained for the past four years, the amount transacted reached a record high of RM 2.0333 trillion, surpassing the RM 2 trillion mark for the first time.

On the flip side of this exciting figure was the negative changes in domestic consumption. Since the total number of domestic insolvency cases surged pass the 18,000 mark for the first time to hit a historical high of 18,119 cases in 2010, a new high was reached in 2011 when the figure breached the 19,000 mark to record 19,167 cases. The situation continued to worsen to another new high of 19,575 cases last year. This translates to an average of more than 53 bankruptcies every day last year. With the growth in household loans easing off, this figure should have already peaked last year and the situation is expected to change for the better.

Drop In Both Production Prices And Inflation
Now that household loans are under control, we can finally focus on the barometer of our economic well-being – the rate of inflation. Inflation rate has slowed to 1.2% in December last year, while the full-year figure was at only 1.6%. Looking ahead, the leading indicator of inflation – producer price index – contracted by 5% in December last year. This is the lowest point of the index since the recession in 2009 due to the aftermath of the financial crisis.

With falling inflation, Bank Negara will have more leeway to keep the economy on track this year through monetary and interest rate policies. In other words, the country’s economic outlook will now hinge on the Government’s policy changes after the coming election.

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