Malaysia’s GDP jumps in Q2 on strong consumption, investment

KUALA LUMPUR (Reuters): Malaysia’s economy grew at a surprisingly strong annual pace of 5.4% in the second quarter, the central bank said on Wednesday, as a jump in private and government investment helped offset weakness in exports amid faltering global demand.

The second-quarter growth beat economists’ expectations of a 4.6% expansion and topped the highest poll forecast of 5.2%. The central bank also revised up growth in the first quarter to 4.9% from 4.7%.

Private consumption rose 8.8% from a year ago, while public consumption increased 9.4%. Both public and private investment surged in the second quarter, rising 28.9% and 24.6% respectively.

Inflation data, also released on Wednesday, showed that the consumer price index for July was 1.4% higher than a year earlier. That was the lowest since March 2010 and compared with a Reuters poll’s median forecast of a 1.6% year-on-year rise.

“Malaysia seems to be in a ‘sweet spot’ - strong growth and subdued inflation trajectory,” said Radhika Rao, an economist at Forecast Pte.

“Strong investments are behind the firmer-than-expected GDP numbers as the private sector draws confidence from strong public spending and infrastructure outlays,” she said. The trade-dependent country’s growth had been slowing after reaching 5.7% year-on-year in the third quarter of 2011. Domestic demand has stayed firm, buoyed by pre-election government spending, but the export sector has been struggling as the global economic picture has deteriorated.

Ambitious plan

The government is implementing an ambitious $444 billion plan to reach high-income status by 2020, which is aimed at upgrading infrastructure and attracting private investment in key, high-growth sectors of the economy.

The government has also boosted its spending ahead of elections that are expected to be called this year, creating the country’s first minimum wage and allocating about 2.6 billion ringgit ($821 million) for poorer households. Prime Minister Najib Razak announced bonuses worth half a month’s salary for civil servants and 500 ringgit each for government pensioners.

Central Bank Governor Zeti Akhtar Aziz told a news conference that growth was expected to remain resilient, underpinned by the private and public sector.

The central bank kept its official GDP target for 2012 at between 4-5%, but said growth is likely to be at the upper end of the range.

A Reuters quarterly poll last month estimated Malaysia’s GDP growth this year at 4.2%. The economy expanded by 5.1% in 2011. A Reuters quarterly poll last month estimated Malaysia’s GDP growth this year at 4.2% . The economy expanded by 5.1% in 2011.

Most Asian economies have been reporting slower growth rates recently. China on Friday reported July export growth of just 1.0%, well below forecasts, while industrial output data on Thursday was also softer than expected.

Indonesia, Southeast Asia’s largest economy, bucked the trend with 6.4% growth in second-quarter GDP compared with the first quarter’s 6.3%.

Now, Malaysia has bucked it too, with growth accelerating in the latest quarter from the January-March period.

Malaysia’s central bank has kept its key interest rate unchanged at 3.0% since May 2011. At its last policy meeting on July 5, the central bank said domestic consumption and investment activity were showing resilience to a slowing global economy.

Exports normally account for 60% of Malaysia’s economy, making the country vulnerable to downturns in major markets. Total exports for the second quarter rose 3.95% from a year ago, compared with 4.4% in the first quarter.

Manufactured goods, which make up of 66.7% of the country’s total exports, grew by 1.9% to 234.34 billion ringgit from January to June this year, the Statistics Department said in a note on Aug. 8.