Malaysia’s Q1 GDP growth seen slowing, April inflation flat

KUALA LUMPUR, May 22 — Malaysia’s economic growth may have slowed in the first quarter as weak global demand weighed on exports, while inflation is likely to have remained unchanged in April, a Reuters poll of economists showed.   

Growth in the first three months of 2012 likely slowed to 4.5 per cent from a year ago, from 5.2 per cent in the fourth quarter in 2011.    

Exports, which account for 60 per cent of the economy, and weak manufacturing were likely to have been the main drag on growth, while robust growth in construction and services may have lent support, economists said.

“The domestic sector continues to drive growth in Malaysia as the country is increasingly becoming less sensitive to global growth,” said Daniel Wilson, Asia economist at ANZ.

“Looking ahead, private consumption will be buoyed by a tight labour market and rising wages, while government spending prior to the upcoming election should provide a boost to help offset any softness in external demand,” he added.

Malaysia’s export growth in the first quarter halved to 4.4 per cent from 9.9 per cent in the fourth quarter. Shipments in March slumped with exports contracting 0.1 pct.

Moreover, even the rise in exports during the quarter was largely due to a jump in LNG shipments, while electrical and electronic products - which made up 32 per cent of total exports — and palm oil showed slight declines as demand from Europe and China slackened.

Malaysia’s manufacturing activities likely moderated, as indicated by growth in the Industrial Production Index (IPI), which moderated to 4.4 per cent yr-on-yr in the first quarter, from 5.3 per cent in October-December.

Inflation may creep up

Consumer price inflation is expected to stay at 2.1 per cent in April, unchanged from March as food prices fell after the Lunar New Year festivities and fuel subsidies have kept the impact of higher global oil prices in check.

Despite the current benign inflation, some economists expect it to creep up on expectations of higher commodity prices and recovering demand if global economic conditions improve in the second half of the year.

Still, the central bank is expected to keep interest rates unchanged as domestic demand is expected to cushion the economy from external uncertainties.

“More heightened (inflationary) pressure may only surface around the latter half of Q3, and thus would mean no reason for the Bank Negara Malaysia to shift away from its current neutral stance on policy rate,” said OCBC economist Gundy Cahyadi.

“The risk to our current view — OPR stays at 3 per cent for 2012 — is that there may be a 25 bps rate cut should growth momentum falters amidst the global uncertainties,” he added.   

Malaysia’s central bank kept its key interest rate at 3.0 per cent on its May 11 meeting as expected by analysts, saying domestic demand has propped up growth even though the euro zone debt crisis continues to fester.

Bank Negara has projected GDP to expand 4-5 per cent this year, slowing from 5.1 per cent in 2011. A Reuters quarterly poll last month estimates 2012 GDP at 4.1 per cent    

Within the region, Thailand’s economy, affected by severe flooding last October, grew 0.3 per cent from a year ago while Indonesia reported 6.9 per cent yr-on-yr rise — its slowest growth in six quarters — as exports fell. Singapore’s Q1 GDP grew 1.6 per cent year-on-year, easing from 3.6 per cent in the last three months of 2011.

China, Malaysia’s largest trading partner, reported slowest growth in nearly three years with a weaker-than-expected annual 1Q GDP growth of 8.1 per cent. — Reuters


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