Malaysian economy expected to pick up in second half

Analysts said the economy would pick up more in the second half on better export data, continuous strong domestic demand, improved sentiment and confidence in the economy, following the general election.

However, several research houses have downgraded their full-year GDP forecasts to reflect the slower-than-expected first quarter growth of 4.1 per cent, the lowest quarterly growth since the third quarter of 2009.

“We found the poor growth of below 5 per cent to be the first in seven quarters, dragged down 0.6 per cent year-on-year by weak exports in the first quarter of 2013, following a decline of 1.6 per cent year-on-year in the fourth quarter of 2012,” said MIDF Investment Bank Bhd chief economist Anthony Dass in a research note.

However, he said domestic demand remained strong, expanding by 8.2 per cent year-on-year in the first quarter of 2013 from 7.8 per cent year-on-year in the fourth quarter of 2012.

Dass has lowered his full-year real GDP growth to a range of 4.8 per cent and 5 per cent from between 5.5 per cent and 5.8 per cent previously, due to the poor performance in the first quarter of 2013.

However, he projects the economic growth to be stronger in 2014 at 6.4 per cent, boosted by domestic demand and improving exports.

“We expect the economic growth performance to most likely stay below 5 per cent in the second quarter of 2013, primarily due to weak exports,” he said.

CIMB Investment Bank Bhd economic research head Lee Heng Guie also cut his full-year real GDP estimate to 5.1 per cent from 5.5 per cent previously and expects GDP to grow 5 per cent in the second quarter, aided by election spending and partly due to the run-up in equity prices after Barisan Nasional's win.

“With the removal of the political overhang, we believe that broad policy continuity and certainty as well as the faster implementation of ETP (Economic Transformation Programme) projects, including the mass rapid transit project, will sustain the investment momentum,” he said.

Lee added that domestic demand should continue to anchor the economy's growth, especially via private sector expenditure.

“We earlier expected an even chance of rate normalisation if domestic economic conditions stay strong in the second half of 2013. But now that growth is not expected to pick up as strongly as anticipated, we expect interest rates to be kept on hold at 3 per cent for the rest of the year,” he said.

He had earlier anticipated interest rates to be between 3 per cent and 3.25 per cent previously.

Maybank Investment Bank Bhd and Alliance Research have, however, maintained their full-year GDP growth estimates.

Maybank is maintaining its full-year GDP growth forecast of 5.3 per cent as it expects investment growth momentum to accelerate post-election, and consumer spending to remain resilient as the subsidy rationalisation programme was not expected to resume in the second half of the year. “We also expect improvements in manufacturing and mining as the year progresses,” it said.

Alliance foresees growth rebounding to an average of 6.4 per cent in the second half of 2013, from an anticipated average of 4.5 per cent in the first half of the year, brought about by continuity of strong domestic activities.

“In this regard, we maintain our house view that the full-year GDP growth would likely hit 5.5 per cent in 2013, still within the range forecast of 5 per cent and 6 per cent set by the central bank in March 2013,” it said.