Saturday, November 16, 2013

Malaysian Economic Growth Accelerates Before Fiscal Tightening

Malaysia’s economy expanded at the fastest pace in three quarters as exports recovered and domestic demand held up before Prime Minister Najib Razak raised fuel prices in September.


Gross domestic product rose 5 percent last quarter from a year earlier, after gaining a revised 4.4 percent in the second quarter, the central bank said in a statement in Kuala Lumpur today.

The increase exceeded all but three estimates in a Bloomberg News survey of 19 economists, where the median was for a 4.7 percent advance.

Exports rose in the three months through September after declining in the first half of the year, as the nation benefited from a global recovery the central bank described as “moderate” on Nov. 7.

Bank Negara Malaysia held its benchmark interest rate at 3 percent for a 15th meeting this month to support growth, predicting domestic demand will ease as the government restrains public spending.

“We’ve seen some improvement in the export numbers and that’s really a bigger driver of growth,” Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc., said before the report. In the coming months, “external demand is not going to be that strong.

Also, domestic demand seems to be slowing because of fiscal consolidation and the government policy to try and reduce investment spending,” he said.

Malaysia’s ringgit climbed the most in almost three weeks earlier today after U.S. Federal Reserve chairman nominee Janet Yellen indicated she’ll press on with the Fed’s unprecedented monetary stimulus until she sees a robust recovery.

Current Account

The currency appreciated as much as 0.4 percent to 3.191 per dollar in Kuala Lumpur today, the steepest increase since Oct. 28, according to data compiled by Bloomberg.

It traded at 3.2023 at 4:59 p.m. The FTSE Bursa Malaysia KLCI Index of shares gained 0.3 percent today.

Malaysia’s current-account surplus widened to 9.8 billion ringgit ($3.1 billion) in the third quarter from 2.6 billion ringgit in the preceding three months, less than three out of four forecasts by analysts in a Bloomberg News survey.

Najib has cut fuel and sugar subsidies in recent months to contain the budget deficit and shore up the current account after Fitch Ratings lowered Malaysia’s credit outlook to negative in July.

Inflation accelerated to a 20-month high of 2.6 percent in September, raising the risk that higher living costs will damp consumer spending.

Central bank Governor Zeti Akhtar Aziz said in October that over the next six months to a year, she would focus “mostly on growth” rather than inflation, because global expansion will remain “subdued.”

2014 Forecast

Southeast Asia’s No. 3 economy may expand 5 percent to 5.5 percent in 2014 from an estimated 4.5 percent to 5 percent this year, the government said last month.

“For the Malaysian economy, the gradual recovery in the external sector will support growth,” the central bank said in a statement today.

“Domestic demand from the private sector will remain supportive of economic activity amid the continued consolidation of the public sector. The economy is therefore expected to remain on its steady growth trajectory.”

Services rose 5.9 percent in the July-to-September period from a year earlier after climbing 5 percent in the second quarter, today’s report showed. Construction gained 10.1 percent last quarter, after a 9.9 percent increase the previous period.

Manufacturing grew 4.2 percent from 3.5 percent. Exports of goods and services climbed 1.7 percent in the third quarter from a year earlier, after falling 5.2 percent in the second quarter, according to the report today.

Private consumption increased 8.2 percent, accelerating from 7.2 percent even as public consumption growth slowed.

“We need that external pickup to keep growth up,” Edward Lee, a Singapore-based economist at Standard Chartered Plc, said before the report. “On the external demand side we do expect further improvement.”

bloomberg.com

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