The country’s gross domestic product (GDP) expanded by 5.8% in the third quarter ended Sept 30 on a year-on-year basis as domestic demand remained resilient while private and public sector spending expanded amid uncertainty and volatility in the external front.
The growth in the economy was unexpected as the median in a Bloomberg survey of economists was for a 4.8% rise while the expansion of the economy was largely supported by higher commodity prices and firm regional demand for non-electric and electronic manufactured goods.
GDP grew a revised 4.3% in the previous quarter while the economy grew 5.2% in the first quarter.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said in a media briefing that the outlook for the fourth quarter would depend on how much developments in recent months would impact trade.
“The risks to global economic growth has increased following developments in the third quarter and very likely this will impact exports, however, we expect our domestic demand to remain resilient and to continue sustaining growth,” she said.
Zeti added that due to the uncertainty and volatility in the external front, the outlook for the fourth quarter was uncertain at this point. “It remains to be seen as to what extent the uncertainty and volatility would impact overall economic growth,” she said.
“Given the recent developments, 5% growth or even in the high region of 4% would be considered very good,” Zeti said, adding that the volatility in the financial markets were destabilising to economic growth.
AmResearch Sdn Bhd director of economic research Manokaran Mottain told StarBizWeek that the economy would still achieve a decent growth of 5% for the full-year even if GDP was to slow down to between 4% and 5% in the fourth quarter.
Zeti said the third quarter’s economic performance was also due to the receding impact from the supply chain disruption stemming from the Japanese tsunami and earthquake disaster in March while income growth was supported by higher commodity prices, bonuses and public spending, which contributed to domestic demand.
Overall consumption rose 9.9% from a year ago with public sector spending growing a significant 21.7% as funds were distributed for various infrastructure projects and other Economic Transformation Programme initiatives.
Private sector spending grew 7.3% from an expansion in private consumption and continued expansion in capital spending.
Growth strengthened in most economic sectors except mining which declined 6.1%. The agriculture sector expanded by 8.2%. The services sector grew 7% while the manufacturing sector expanded by 5.1% as supply-chain disruptions were reduced and following higher output of domestic-related industries.
The construction sector grew by 3% led by a turnaround in the civil engineering sub-sector.
Meanwhile, Zeti said the central bank would continue to intervene in the currency markets just as central banks in the region have done in order to damp daily volatility in currency movements.
“Most central banks in the region had intervened, and Bank Negara will do so in the event of excessive volatility in any one paticular day and we don’t influence the underlying trend of the exchange rate,” she said.
Zeti added that interest rates remained supportive of growth unless there were significant developments that heightened growth risks or where inflation rose significantly.
She said the overnight policy rate (OPR) was reduced to 2% in early 2009 due to major economic risks on the horizon, which was not the case this time around as the economy was not contracting.
On the other hand, Manokaran said the prospects for a cut in the OPR would increase since the economy might just hit the lower end of the Government’s 5% to 5.5% target this year and faced slower growth in 2012.