Published August 27, 2009

M'sian economy springs a pleasant surprise

Building, services behind better than expected 3.9% Q2 shrinkage

By S JAYASANKARAN
IN KUALA LUMPUR
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THE Malaysian economy beat market expectations with gross domestic product contracting 3.9 per cent in the second quarter, versus a consensus forecast by private economists of minus 5.1 per cent.

Dr Zeti: Says the economic contraction in 2009 will be smaller than expected

The smaller than expected contraction was a major improvement over the country's Q1 shrinkage of 6.2 per cent. With the latest numbers, the central bank said the economy retreated 5.1 per cent in the first half of the year.

Compared with other Asian economies, stimulus packages announced by Prime Minister Najib Razak showed little sign of kicking in, with public consumption growing just one per cent.

'It's an impressive performance, given that most of us thought it would be worse,' said Manokaran Mottain, an economist with the Arab-Malaysian Banking Group. 'But it seems clear that the stimulus money hasn't come in.'

The better than expected performance shows that Malaysia, like the rest of Asia. is exhibiting 'green shoots'. But Kuala Lumpur must be worried about the economy's seeming lack of response to Mr Najib's stimulus packages announced as far back as March.

The GDP figures, released by the central bank yesterday, show the economy's better performance was driven largely by services (1.6 per cent) and construction (2.8 per cent).

Manufacturing was hit hardest, shrinking 14.5 per cent in Q2 after a Q1 decline of almost 18 per cent.

This was evident in Malaysia's export performance. Output shrank 17.3 per cent, which the the central bank attributed to 'weak external demand'. Imports registered a 19.7 per cent correction.

Surprisingly, the central bank provided no figures for investment - neither public nor private - although it did say total consumption grew 0.6 per cent in Q2, after contracting 0.2 per cent in Q1.

Inflation continued to fall. In July it dipped 2.4 per cent, allowing the central bank to keep interest rates low and conducive to growth. On Monday, the bank maintained its overnight policy rate at a historic low of 2 per cent. And with near-deflation persisting, it is likely to keep rates low until the second half of 2010.

'We expect a gradual recovery,' central bank governor Zeti Akhtar Aziz told a news conference. The economic contraction in 2009 will be smaller than expected, she said without elaborating.