Malaysia: National Bank revises downwards overall GDP growth target.

Malaysia’s economy in the second quarter of the year grew at a slightly faster pace, but below market expectations, as prolonged weakness in the external environment remains a drag to domestic economic activity.

Gross domestic product (GDP) for the three months to June grew 4.3% year-on-year (y-o-y), sustained by domestic demand, as compared with market expectations of a 4.7% y-o-y growth for the period in review, and a GDP growth of 4.1% y-o-y in the first quarter of the year.

“While domestic demand in the Malaysian economy has remained strong, the overall growth performance has been affected by the weak external sector,” Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said at a press conference. She noted that the phenomenon was not unique to Malaysia, as growth in several economies in Asia, particularly those that were export-oriented, had also moderated in the second quarter, as the prolonged weakness in the external environment had started to affect the countries’ domestic economic activities.

“For the Malaysian economy, the prolonged weakness in the external environment has affected the overall growth performance of the economy, going forward,” Zeti said. “While domestic demand is expected to remain firm, supported by sustained private consumption, capital spending in the domestic-oriented industries and the on-going implementation of infrastructure projects, the weak external in the first half of this year would affect our overall growth performance for the year,” she added.

Consequently, Bank Negara has revised downwards the overall GDP growth target for Malaysia in 2013 to 4.5%-5.0% from its earlier target of 5%-6%. “We are expecting a challenging environment, with little improvement in the second half of this year,” Zeti said, adding that domestic demand was expected to remain on its steady growth trajectory and would continue to be supported by an accommodative monetary policy.

Inset: Zeti at the briefing on Wednesday

Meanwhile, Malaysia’s current account surplus for the second quarter of the year narrowed to RM2.6bil from RM8.7bil in the preceding quarter. This was due to lower goods surplus as well as sustained services deficit and outflows in the income accounts. Zeti said Malaysia would likely remain in a surplus position through the year, as the expected recovery in external demand, albeit at a moderate pace, would help improve the country’s current account balance.

In addition, Zeti said the Government was considering various options to improve Malaysia’s current account balance. These include scaling back some large projects that had high import content, increasing the country’s economic competitiveness and diversifying its export markets.

She said that Malaysia continued to enjoy a steady flow of foreign direct investment, which could contribute positively to the country’s current account balance.                                                                                                                                                                           Source: theSTAR 22-08-2013

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