Malaysia Global Markets Research

Newsflash
MY GDP 20 February 2013

Malaysias economy grew at the quickest pace since 2010

The Malaysian economy expanded at a surprising pace of 6.4%YOY in 4Q12 with all sectors recording comparatively strong figures, accelerating from an upwardly revised 3Q12 rate of 5.3% (previously 5.2%). That brings the annual 2012 growth rate to 5.6%YOY, up from 5.1% in 2011. Strong GDP figures were lifted by quicker growth in agriculture, manufacturing as well as mining & quarrying, offsetting slight moderation in services and construction. Manufacturing expansion accelerated 5.8%YOY from 3.3% in the previous quarter due to increased output in all subsectors except textiles, wearing apparel and leather products while agriculture sectors growth of 5.6% is attributable to increased production of crude palm oil, livestock and fishing subsectors. Mining & quarrying rebounded from 3Qs contraction, expanding 4.3% with strong production of natural gas and crude oil. Despite moderation, growth in services and construction sectors remained healthy at 6.3% and 18.1% respectively, thanks to robust activities in finance & insurance for the former and oil & gas for the latter. On the demand side however, all sectors recorded moderation. Overall domestic demand grew 7.5% in 4Q, moderating from 11.4% in the preceding quarter but some improvement in net exports provided some support. Gross fixed capital formation, led by a strong private sector expansion (+20.2%), registered its 4th consecutive double-digit growth in 4Q2012, rising 15.0% though slower than last quarters 22.7%. Private consumption retreated to a 6.1% growth from 8.5%, while public spending slowed to 1.1% from 2.3%, dragged by declines in expenditure on supply and services. Consumer prices moderated for the 5th consecutive quarter to 1.3%YOY in 4Q12 (1Q12: 2.3%YOY; 2Q12: 1.7%YOY; 3Q12: 1.4%YOY), while in Jan 2013, inflation accelerated for the first time in 16 months to 1.3%YOY from 1.2%. Given minimal cost-push price pressure due to subdued global demand and impact of minimum wage policy negligible in the short-term, we expect CPI to stay within the range of 1.3% and 1.4% in 1H2013. Nonetheless, we caution that governments commitment towards subsidy rationalization would pose some upside pressure to CPI towards the 2.0% and 3.0% range in 2H2013, resulting in an inflation rate of around 2.0%-2.5% for 2013.

We maintain that the Malaysian economy would grow 5.4% YOY this year, continues relying on resilient
domestic demand underpinned by well-supported private consumption and robust investment as ETP projects gather steam. Gradual improvements on the external front will also works in favour of Malaysias economic expansion. External threats have somewhat abated through 4Q2012, noting in particular the stabilization of financial markets through measures imposed to stem the spread of European debt crisis, the bottoming-out in Chinas slowdown as well as successive pick-ups across housing, consumer spending and employment in the US. On monetary policy, we believe BNM will keep the OPR unchanged in 1H2013 pending better clarity on growth prospects before the next move higher.
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20 February 2013

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