MARKET DEVELOPMENT
Malaysia’s Growth Slows as Exports Sputter, Investment Cools
Malaysia’s Growth Slows as Exports Sputter, Investment Cools
14/11/2014 (Bloomberg) - Malaysia’s economic expansion slowed last quarter after exports (MAETEYOY) and investments cooled, an easing that may persist as subsidy cuts weigh on private consumption.
Gross domestic product rose 5.6 percent in the three months through September from a year earlier, after climbing a revised 6.5 percent in the second quarter, the central bank said in Kuala Lumpur today. That matched the median estimate in a Bloomberg News survey of 26 economists.
Demand for Malaysian goods has weakened amid an uneven global recovery, while consumers and companies are grappling with higher costs as the government reduces subsidies. The central bank held interest rates in the two most recent policy meetings after becoming the first in Southeast Asia to raise its benchmark this year, pointing to rising threats to the world economy.
“We expect growth to slow further in the coming quarters, as the domestic economy feels the effects of fiscal tightening,” said Krystal Tan, a Singapore-based analyst at Capital Economics Ltd. “On the external side, softer commodity prices will be a headwind.”
The ringgit fell 0.2 percent to 3.3465 against the U.S. dollar as of 3:54 p.m. local time. It has weakened about 5 percent in the past three months. The FTSE Bursa Malaysia KLCI Index of shares dropped 0.3 percent today.
Higher Prices
The government raised fuel prices by about 10 percent in October as part of Prime Minister Najib Razak’s latest efforts to contain fiscal spending and narrow a budget deficit. Some gas tariffs were also increased this month.
Consumer prices are forecast by the government to climb 4 percent to 5 percent next year, the fastest since 2008. A goods and services tax of 6 percent will start in April, an added burden on businesses and households.
Gross fixed capital formation growth slowed to 1.1 percent last quarter from a year earlier after a 7.2 percent increase in the period ended June. Economists at Credit Suisse Group AG and Nomura Holdings Inc. were among those who called the investment slowdown a “bigger surprise” compared with easing exports.
“It is easily the least contribution made by investment to headline growth since 2009, perhaps brought about by slower property-related activities during the period,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore.
Key Driver
Domestic demand will remain the key growth driver, central bank Governor Zeti Akhtar Aziz told reporters today. Investment activity will be supported by the “continued flow of ongoing and new projects by the private and public sectors,” Bank Negara Malaysia said.
Exports climbed 2.8 percent in the third quarter from a year earlier, after increasing 8.8 percent in the previous three months. Manufacturing growth eased to 5.3 percent.
Malaysia’s overseas shipments range from palm oil to electronics and petroleum. Crude plunged into a bear market last month and the Bloomberg Commodity Index of 22 raw materials declined to the lowest level since July 2009 today.
“The fall in commodity prices coupled with the loss of growth momentum in China will likely limit improvements in export growth,” Nomura analysts Euben Paracuelles and Brian Tan wrote in a report today. “Therefore, domestic demand will have to shoulder a greater burden of supporting growth, just as the goods and services tax is implemented in April 2015.”
Services Engine
Services rose 6.1 percent in the three months through September from a year earlier after climbing 6.2 percent in the second quarter, today’s report showed. Private consumption grew 6.7 percent in the same period, quickening from a 6.5 percent pace in the three months through June.
GDP is projected by the government to expand as much as 6 percent this year and next. The economy grew 6.1 percent in the first three quarters.
The central bank held its key rate at 3.25 percent on Nov. 6. The current monetary policy stance is accommodative and assessed to be appropriate, Zeti said today.
“It looks like the odds of a rate hike is lower now given that growth conditions are slower,” Julia Goh, an economist at CIMB Group Holdings Bhd. in Kuala Lumpur, said before the report.
Gross domestic product rose 5.6 percent in the three months through September from a year earlier, after climbing a revised 6.5 percent in the second quarter, the central bank said in Kuala Lumpur today. That matched the median estimate in a Bloomberg News survey of 26 economists.
Demand for Malaysian goods has weakened amid an uneven global recovery, while consumers and companies are grappling with higher costs as the government reduces subsidies. The central bank held interest rates in the two most recent policy meetings after becoming the first in Southeast Asia to raise its benchmark this year, pointing to rising threats to the world economy.
“We expect growth to slow further in the coming quarters, as the domestic economy feels the effects of fiscal tightening,” said Krystal Tan, a Singapore-based analyst at Capital Economics Ltd. “On the external side, softer commodity prices will be a headwind.”
The ringgit fell 0.2 percent to 3.3465 against the U.S. dollar as of 3:54 p.m. local time. It has weakened about 5 percent in the past three months. The FTSE Bursa Malaysia KLCI Index of shares dropped 0.3 percent today.
Higher Prices
The government raised fuel prices by about 10 percent in October as part of Prime Minister Najib Razak’s latest efforts to contain fiscal spending and narrow a budget deficit. Some gas tariffs were also increased this month.
Consumer prices are forecast by the government to climb 4 percent to 5 percent next year, the fastest since 2008. A goods and services tax of 6 percent will start in April, an added burden on businesses and households.
Gross fixed capital formation growth slowed to 1.1 percent last quarter from a year earlier after a 7.2 percent increase in the period ended June. Economists at Credit Suisse Group AG and Nomura Holdings Inc. were among those who called the investment slowdown a “bigger surprise” compared with easing exports.
“It is easily the least contribution made by investment to headline growth since 2009, perhaps brought about by slower property-related activities during the period,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore.
Key Driver
Domestic demand will remain the key growth driver, central bank Governor Zeti Akhtar Aziz told reporters today. Investment activity will be supported by the “continued flow of ongoing and new projects by the private and public sectors,” Bank Negara Malaysia said.
Exports climbed 2.8 percent in the third quarter from a year earlier, after increasing 8.8 percent in the previous three months. Manufacturing growth eased to 5.3 percent.
Malaysia’s overseas shipments range from palm oil to electronics and petroleum. Crude plunged into a bear market last month and the Bloomberg Commodity Index of 22 raw materials declined to the lowest level since July 2009 today.
“The fall in commodity prices coupled with the loss of growth momentum in China will likely limit improvements in export growth,” Nomura analysts Euben Paracuelles and Brian Tan wrote in a report today. “Therefore, domestic demand will have to shoulder a greater burden of supporting growth, just as the goods and services tax is implemented in April 2015.”
Services Engine
Services rose 6.1 percent in the three months through September from a year earlier after climbing 6.2 percent in the second quarter, today’s report showed. Private consumption grew 6.7 percent in the same period, quickening from a 6.5 percent pace in the three months through June.
GDP is projected by the government to expand as much as 6 percent this year and next. The economy grew 6.1 percent in the first three quarters.
The central bank held its key rate at 3.25 percent on Nov. 6. The current monetary policy stance is accommodative and assessed to be appropriate, Zeti said today.
“It looks like the odds of a rate hike is lower now given that growth conditions are slower,” Julia Goh, an economist at CIMB Group Holdings Bhd. in Kuala Lumpur, said before the report.