GDP expansion pace will improve in second half due to stronger domestic demand, say economists
Malaysia will be able to achieve its growth target of five to six per cent this year although the local economy looks to be slowing in the second quarter, dragged by continued weak exports, economists say.
The slower gross domestic product (GDP) growth of 4.1 per cent in the first quarter is not a concern for policymakers, they said.
Most economists polled by Business Times have maintained their 2013 growth forecasts.
They expect the second half of the year to improve based on the Leading Index indicator, which has pointed to a stronger increase in domestic demand.
The GDP growth slowed in the first three months of this year as exports contracted by 0.6 per cent following a 1.6 per cent fall in the fourth quarter of 2012, although imports rebounded to
3.6 per cent from a 0.6 per cent decrease in the fourth quarter of 2012.
The first-quarter headline growth came in below market expectations, but Affin Investment Bank economist Alan Tan anticipates the growth pace to improve from the second quarter despite the slower recovery in global economic activities.
Domestic demand, in particular consumer spending, will remain strong, supported by favourable employment conditions and income
growth, he said.
Tan expects the GDP to grow at a slightly stronger pace of around five per cent year-onyear in the second quarter before recovering to around 5.5 per cent in the second half.
MIDF Research economist Anthony Dass expects growth to remain weak in the second quarter, hovering between 4.5 and 5.0 per
cent, dragged by exports amid strong domestic demand.
The economy should improve in the second half of the year as exports increases slightly, benefiting from slight gains in semiconductors and stable commodity prices, he said.
Standard Chartered Bank expects better growth prospects in Asia to boost export growth in the second half.
“We expect China’s economy to improve in the second half on gradually improving consumer confidence, infrastructure spending and a recovering housing market.
“Japan’s domestic spending is likely to be supported by ‘Abenomics’ — Prime Minister Shinzo Abe’s aggressive blend of monetary and fiscal easing,” it said.
These two large economies, it said, made up 24.4 per cent of Malaysia’s exports in 2012 and this will support export demand in the second half of this year.
Shipments to Asia have been the most significant driver of Malaysia’s export growth over the past five to six years, while the contraction was caused by declining exports to the United States, European Union, China, Japan and India.
According to Affin's Tan, Malaysia's Leading Index, a reliable indicator designed by the Department of Statistics to measure the direction of economic activity, rose from one per cent month-on-month in February to 2.8 per cent in March for the fourth consecutive month. This indicates a stronger magnitude of increases in domestic demand in the second half.
AmResearch Sdn Bhd economist Patricia Oh said Malaysia ranked among the top performers in terms of GDP growth in the first quarter, alongside China (7.7 per cent), Indonesia (6.02 per cent) and Vietnam (4.9 per cent).
Kenanga Investment Bank expects the economy to pick up from the second quarter as projects under the Economic Transformation Programme resume in "full swing", with no general election uncertainties holding back investors.
"In addition to domestic expansion heading towards maximum capacity, we also foresee a rebound on the external front, especially in the US and Japan," it said, adding that growth can be mitigated by the possible roll-out of the Goods and Services Tax.
RHB Research said a robust domestic demand suggests that there is no urgency for Bank Negara Malaysia to cut interest rates to support growth.