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Malaysia Growth Seen Over 5% For Longest Run Since 2008
Perspective | 17 May 2013

Malaysia’s growth had exceeded 5 percent for six straight quarters, the longest stretch since the depth of the global financial crisis in 2008, with a pick-up in investment poised to add further momentum.

The gross domestic product in Southeast Asia’s third-largest economy, which is due to release on 14 May, probably rose 5.5 percent in the first three months of 2013 from a year before, according to the median of 22 estimates in a Bloomberg News survey. A slide in exports meant the pace probably slowed from a 6.4 percent rate in October-to-December.

With Prime Minister Najib Razak’s election victory this month poised to unleash delayed investment projects, economists at banks from Australia & New Zealand Banking Group to Credit Suisse Group AG predict an acceleration in coming quarters. Cash handouts to lower-income Malaysians promised in the run-up to the vote is also helping domestic consumption offset limited demand for exports.

“Most investors are expecting that with the Barisan Nasional remaining in power, there’s less uncertainty with regards to politics,” said Ho Woei Chen, an economist at United Overseas Bank in Singapore, referring to Najib’s ruling coalition. “Investments will still be strong. That will continue to drive growth, together with consumption.”

Najib held on to power with his governing coalition’s smallest share of the popular vote since 1969 after giving handouts to the poor, higher wages for civil servants and energy subsidies. The mandate gives him scope to promote US$444 billion of private-sector-led projects from mass rail to oil storage planned for this decade.

‘Strong Rebound’
“We expect to see quite a strong rebound perhaps in the second half of the year,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse. “We think post-election investment growth will be boosted by businesses resuming their capital spending activities as election uncertainty fades,” and “infrastructure investment, given a promising project pipeline.”

The ringgit has gained about 1.1 percent since the 5 May vote, while the benchmark FTSE Bursa Malaysia KLCI Index climbed 5.5 percent to close at a record on 14 May.

The last time Malaysia saw growth exceeding 5 percent for at least seven straight quarters was in 2007 and 2008, a run that ended after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in US history, roiling global markets.

The central bank forecasts growth of as much as 6 percent this year, from 5.6 percent in 2012. It has kept borrowing costs unchanged at 3 percent for 12 meetings, most recently on 9 May, as an expanding economy reduces the need to join South Korea, Australia and India in cutting rates.

Indonesia Rates
Indonesia held interest rates at a record-low 5.75 percent. Elsewhere in the region, New Zealand reported first-quarter retail sales excluding inflation rose 0.5 percent, while India said wholesale price gains slowed in April.

Industrial-production growth in the Euro region quickened in March from the previous month, while German investor sentiment, as measured by ZEW Center for European Economic Research, climbed less than economists expected in May. The US Labor Department may say import prices fell in April, while the National Federation of Independent Business is forecast to report confidence among small companies rose the same month.

Since taking charge in April 2009 during a recession, Najib has streamlined bureaucracy and opened up more industries to foreign investors. In September 2010, he unveiled a so-called economic transformation programme that was targeted at luring investments and creating jobs, and the government implemented a minimum wage last year.

Export Demand
The strategy to boost domestic consumption and increase government spending has helped the economy weather easing demand for its goods in overseas markets. Malaysia exports commodities such as palm oil and petroleum, as well as electronics and chemicals.

“While the external sector is affected by global developments, domestic demand has continued to provide support to growth,” the central bank said in a statement. “Investment activity and private consumption have remained firm. Going forward, the domestic economy is expected to sustain a steady growth.”

Domestic consumption may also be supported should Najib delay plans for fiscal consolidation. After winning the tightly-fought election, the prime minister may hold back on a reduction in fuel subsidies and the implementation of a goods and services tax, Credit Suisse’s Santitarn said.

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