KUALA LUMPUR, Aug 13 – Malaysia’s pace of economic growth may have declined slightly in the second quarter as exports slowed, but with domestic demand seen healthy and inflation probably likely still low in July, interest rates are widely expected to remain on hold.
Gross domestic product in the second quarter of 2012 probably rose 4.6 per cent from a year ago, against 4.7 per cent in the first three months of 2012, a median forecast of 17 economists polled by Reuters showed.
The GDP growth rate for the latest quarter will be announced on Wednesday.
Consumer price inflation in July, to be announced the same day, is expected to be flat at 1.6 per cent, the same level as June, according to the poll.
Economists say Malaysia’s domestic demand has largely been spurred by government moves and spending ahead of elections expected this year, and by an Economic Transformation Programme (ETP) comprising US$444 billion (RM1.39 trillion) worth of mostly private initiatives.
The government created the country’s first minimum wage and allocated about RM2.6 billion for poorer households. Prime Minister Najib Razak announced bonuses worth half a month’s salary for civil servants and RM500 each for government pensioners.
During the second quarter, “stronger private consumer spending and generous pre-election fiscal handouts likely supported domestic demand, compensating for slower export growth,” said BofA Merrill Lynch economist Chua Hak Bin.
Exports normally account for 60 per cent of Malaysia’s economy, making the country vulnerable to downturns in major markets. Total exports for the second quarter rose 3.95 per cent from a year ago, compared with 4.4 per cent in the first quarter.
In the June trade figures, a drop in imports of intermediate goods – used to make other products, usually to be exported – could mean the country is starting to feel the pinch from global economic slowing.
Several economists noted that the purchasing managers’ indexes of key export markets indicate a decline in global tech demand, especially from Europe, which will likely results in Malaysia’s exports sliding in the second half of the year. Electronics account for about one-third of Malaysia’s exports.
A Reuters quarterly poll last month estimated Malaysia’s GDP growth this year at 4.2 per cent, within the official target of 4-5 per cent. The economy expanded by 5.1 per cent in 2011.
JULY CPI STILL BENIGN, INTEREST RATES SEEN ON HOLD
The polled economists saw inflation as stable in July, with food prices expected to be slightly higher due to the Islamic fasting month of Ramadan and higher corn and soybean prices because of the US drought. But these were likely offset by lower oil prices.
Malaysia’s benign inflation leaves room for the central bank to cut interest rates in the event of a sharp downturn though economic growth, albeit moderating, is currently on track, economists said.
Many economists expect rates to be kept at 3.0 per cent at the monetary policy meeting on Sept. 6, and for the rest of the year.
“Fiscal policy is already quite loose and this should make the central bank more cautious about adding further stimulus,” Credit Suisse economist Santitarn Sathirathai said in a report last week.
Bank Negara left rates unchanged at its July 5 meeting, its seventh straight hold, saying domestic consumption and investment activity were showing resilience to a slowing global economy. – Reuters