By JAGDEV SINGH SIDHU firstname.lastname@example.org
Better than expected growth of 7.2%
Big boost from services and manufacturing segments last years
KUALA LUMPUR: Growth of the Malaysian economy in 2010 beat official expectations as the economy expanded by 7.2% compared with the official projection of 7%. The economy contracted by 1.7% in 2009.
Much of the growth for the year was provided by the two largest segments of the economy services and manufacturing which grew by 6.8% and 11.4% in 2010.
The construction sector, which is universally acknowledged to have the deepest linkages within the economy, expanded by 5.2% last year compared with 5.8% in 2009.
Spending by households and businesses also drove private consumption up steeply to report a growth rate of 5.3% compared with 1.2% before.
“Going forward, the global economic recovery is expected to remain uneven across the different regions,” Bank Negara said in a statement.
“While short-term prospects for the advanced economies improved recently, uncertainties remain over weak fiscal positions, high unemployment and constrained lending conditions.”
It said the growth outlook for Asia, however, remained favourable but regional economies were confronted with the challenges of rising inflationary pressures, particularly from high commodity and fuel prices, and the large and volatile capital flows.
“The pace of growth of the Malaysian economy will be affected by the environment of moderating external demand,” it said.
Bank Negara said growth would, nevertheless, be supported by continued expansion in domestic demand and private consumption spending would continue to benefit from the favourable labour market conditions, firm commodity prices and access to financing.
“The roll-out of construction and infrastructure activities and the implementation of the economic transformation programme by the Government are likely to provide significant support to the growth momentum in private investment,” it said.
Bank Islam chief economist Azrul Azwar Ahmad Tajudin expects the pace of moderation of the economy as shown from the second quarter onward to continue until the second half of this year.
He said the higher base effect, the inventory restocking which boosted numbers in the first half of last year and the projected sluggishness of the global economy, austerity measures in Europe and cooling measures by China would be a drag on growth numbers.
AmResearch senior economist Manokaran Mottain, however, feels the slower numbers would relieve the central bank from any pressure to raise interest rates.
For the fourth quarter, the economy expanded by 4.8% as higher private and public sector spending contributed to the expansion in domestic demand but the economy was hampered by a slowdown in external trade.
Domestic demand expanded by 5.7% in the fourth quarter compared with 5% in the third quarter, due mostly to the strong expansion in private consumption and capital spending.
Private consumption grew by 6.5% (third quarter: 7.1%) supported by a favourable labour market, positive consumer confidence and higher income levels. Public consumption fell by 0.3% (third quarter: -10.2%) as the Government spent less on supplies and services.
Gross fixed capital formation increased by 9.2% in the fourth quarter (third quarter: 9.8%) driven by both public and private capital spending.
“Private sector capital spending was led by the expansion in the production of domestic-oriented industries amid high levels of capacity utilisation. Public sector capital investment rose as a result of higher development expenditure mainly in the education and transportation sectors,” Bank Negara said.
During the fourth quarter, the services and construction sectors registered higher growth rates than the third quarter while the growth rate of manufacturing slowed.
The agriculture and mining sectors contracted in the fourth quarter compared with the third.
Bank Negara said gross inflows of foreign direct investment for the final quarter of last year were higher at RM11.8bil (third quarter: +RM8.5bil) as more money poured into the capital markets.
On a net basis, which is after adjusting for gross outflows due to repayment of inter-company loans, net FDI increased to RM8.3bil (third: +RM4.4bil) as FDI was channelled mainly into the services, manufacturing and mining sectors.
The central bank said investments in the services sector were primarily undertaken by companies in the finance, insurance and business services, as well as wholesale and retail trade sub-sectors.
In the manufacturing sector, the FDI was channelled into the electrical and electronics as well as petroleum-related industries.
Malaysians invested less money abroad in the fourth quarter as the net outflow was RM3.2bil (third quarter: -RM5.4bil) due to lower net extensions of inter-company loans to subsidiaries abroad.
Bank Negara said investments were mainly in the services sector, particularly in the finance, insurance and business services, and wholesale and retail trade sub-sectors and there were also large investments abroad in the oil and gas and the agriculture sectors.
Portfolio investment registered a smaller net inflow of RM2.8bil in the fourth quarter (third quarter: +RM9.8bil) as foreign investors sold off their shares and bond holdings in the country, particularly in November, in reaction to sovereign debt concerns in the eurozone.
“Nevertheless, steady growth in the domestic economy has continued to attract inflows of foreign funds into the domestic equity and bond markets,” it added.