GDP expands quicker in Q4, shows resilience in the face of the RM’s weakness

The growth underlines the Malaysia's’s resilience in the face of the ringgit’s weakness and increased volatility in the global financial markets..

The growth underlines the Malaysia's’s resilience in the face of the ringgit’s weakness and increased volatility in the global financial markets..

PETALING JAYA: The Malaysian economy grew 4.5% in the fourth quarter of 2016, expanding at its fastest pace in a year in a performance that underlines the country’s resilience in the face of the ringgit’s weakness and increased volatility in the global financial markets.

Growth during the quarter was supported by the strong showing in the manufacturing and services sectors, while steady private spending helped to mitigate a decline in Government spending.

The economy expanded 4.2% for the full year, Bank Negara said in a statement yesterday.

“The change in public expenditure is perhaps the most eye-catching for pundits,” MIDF Research said.

Government spending fizzled, contracting sharply during the quarter by 4.2% - the first time since the second quarter of 2014.

In fact, the quarterly decline at 7.3% was the biggest since the revision to the 2010 base year.

“This is unsurprising to us, given that the Government had repeatedly reiterated its commitment to fiscal consolidation,” the firm said.

On the supply side, the manufacturing and services sectors have continued to catalyse the domestic economic growth. In a dramatic turnaround, exports and imports rebounded during the quarter, expanding 1.3% and 0.7%, respectively.

“While the external environment may continue to remain challenging, the Malaysian economy will experience sustained growth with the primary driver being domestic demand,” Bank Negara said.

The Government had previously projected a 4%-5% growth for the economy in 2017.

Private consumption is anticipated to remain supported by wage and employment growth, Bank negara said, with additional impetus coming from announced Government measures to support disposable income of households.

“Investment activity will continue to be anchored by the ongoing implementation of infrastructure projects and capital spending in the manufacturing and services sectors,” it said.

On the external front, net exports contributed positively to growth, as real exports expanded at a faster rate than real imports.

Malaysia’s moderate gross domestic product (GDP) growth for the quarter was complemented with a moderate inflation rate.

“If the growth momentum holds, we should expect a status quo in the benchmark interest rates,” MIDF Research said.

As measured by the annual change in the Consumer Price Index, Malaysia’s inflation in the fourth quarter rose by 1.7%, compared to 1.3% in the third quarter.

The 0.4-percentage-point increase in inflation was driven mainly by upward adjustments to domestic fuel prices during the quarter.

Meanwhile, Malaysia’s current account surplus widened in the fourth quarter, primarily attributed to a higher trade surplus and narrower deficits in the income accounts. As at Jan 31, 2017, the central bank’s reserves position amounted to US$95bil (RM426bil).

The reserves are sufficient to finance 8.6 months of retained imports, significantly higher than the three-month international threshold. The reserves level is also adequate to meet external obligations, given the reserves to short-term external debt coverage of 1.1 times.

Commenting on the latest economic results, Nomura Research said that Malaysia’s fourth-quarter 2016 GDP growth was slightly better than expected. To note, the research house had predicted a growth of 4.3%, similar to the third quarter of 2016.

“The fourth-quarter results showed a significant drag from continued fiscal tightening to meet the full-year fiscal deficit target of 3.1% of GDP, following a significant overshoot in the first half of 2016.

Overall, these data imply upside risks to our 2017 forecast of GDP growth slowing to 3.7% and the current account surplus narrowing to 1.2% of GDP.

“Still, we remain cautious over the sustainability of the recent improvement in exports, as manufactured exports to the United States, which is a source of resilience for Malaysia over the past few years, could be vulnerable to potential trade protectionism from the Trump administration,” said Nomura Research in its note.

Economy , Forex , Oil & Gas , GDP