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The Economy Holds Firm At 5%
Malaysia Perspective | 26 February 2013

By Yang Ming Wan

Since the 2008-2009 financial tsunami, Malaysia has been successful in its effort to put the economy back on track with a growth rate of 7.2% in 2010. Since then, the country has been growing at an average of 5%. Looking at the latest economic data, Malaysia seemed to have succeeded in upholding this figure, last year.

If the country can sustain this growth momentum for the rest of this year, it should also be able to defend the 5% target this year and probably even next year. RAM Ratings predicted that the Malaysian economy will grow at 5.3% this year and a rosier 5.8% next year.

Strong Performance In Three Key Sectors
Looking at the industrial production index for last November which was released by the Department of Statistics recently, so long as there are no major developments in the situation abroad, and provided that the industrial production momentum is sustained, the Malaysian economy is indeed able to secure its 5% growth.

The industrial production index grew 7.5% in November last year, which was its best performance over the six months since hitting 7.8% in May last year. This figure was also the third-highest growth rate recorded last year, the highest being 8.3% recorded in February.

The strong outing of our industrial production can be attributed to the stellar performance of its three component sectors – manufacturing, mining and electricity production. As the lead economic sector of the Malaysian economy – manufacturing – which accounts for 63.51% of the production index, grew by 7.6%. Mining, which ranks second in importance by virtue of it accounting for 30.61% of all industrial production, increased by 7.5%, and electricity production, which accounts for 5.88% of the index, grew by 6%.

All three sectors grew at nearly identical rates, which made last year’s growth rates the most evenly spread in recent years. In the past, the mining sector had been plagued by maintenance issues of its oil and gas production facilities that had prevented smooth operations of its production chain. The liquefied natural gas plant in Bintulu, Sarawak, was shut down for maintenance in the third quarter of last year, which caused mining production in that quarter to contract by 1.1%. The plant was back online just in time to propel mining productions to grow by 7.5% in November.

Focus Shifts From Inward-Serving To Outward
In addition to the uniformly-strong showing by the three major sectors, another aspect of the performance of the industrial production index is the shift in focus in the manufacturing sector. Since the strong rebound in Malaysia’s economy in 2010 and shaking free of the recession triggered by the collapse of foreign economies in 2009, the local manufacturing sector has been focusing on serving the domestic market. It grew by more than 11% in 2010, of which its exports grew by nearly 10%, while its production for the domestic market grew by nearly 16%. In 2011, exports and domestic production grew by 3.4% and 8.4% respectively.

Exports in the first, second and third quarters of last year was lower, while domestic-oriented manufacturing was higher. The growth rates for the three quarters respectively were: 3% versus 10%, 5.1% versus 8.2%, and 2.5% versus 6.9%.

This trend was becoming increasingly established: last September’s figures were 3.6% versus 11.3%, which widened further to 3.4% versus 3.6% in October. However, the recently announced manufacturing growth figures for November presented a twist, in which domestic-oriented manufacturing slowed unexpectedly to 6.7%, almost half of the 13% recorded in October. On the other hand, export-oriented production registered a jump to grow at 7.9%, powering ahead of domestic-oriented production for the first time in recent years.

Shift From Domestic To Exports Demonstrates Resilience Of Sector
Although the service sector makes up the bulk of Malaysia’s economy, the driving force for economic growth has always been the manufacturing sector. The current volatility in overseas demand had prompted the Government to turn to stimulating domestic demand in a bid to sustain the country’s economic growth. However,  prolonged reliance on domestic demand will only pile pressure on the local economy from within.

The shift in manufacturing focus last November demonstrated the resilience of Malaysia’s manufacturing sector to change track spontaneously in reaction to economic changes.

This is possible, in part, because of the diversification of Malaysia’s manufacturing industries, ranging from basic industries that provide raw produce to the electrical and electronics industry.

There is also diversification in the export markets, which includes the US, Europe, East Asia and ASEAN.

Such diversification and resilience, when coupled with the right policies, would ensure that the 5% growth target will be easily attainable over the next two years.

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