Malaysian economy loses some momentum

Sept 7 - Malaysia's GDP growth slowed to 6.3% year on year in the second quarter, a healthy showing, despite being at a one-year low.

Private consumption growth held firm, at 9%, albeit down from the double-digit gains seen over the preceding four quarters.

Gross fixed capital formation also rose more slowly, by 5.6%, the weakest performance since the third quarter of 2006.

Export growth was surprisingly strong, at 9.7%, compared with 6% in the first quarter; Statistics Malaysia says it was pushed up by a "rebound" in exports of electric and electronic products, double-digit gains in shipments of petroleum and related products, and vegetable oils and fat. Import growth also accelerated, to 8.4% from 3.4% in the first quarter.

The EIU view: High inflation, which has been cutting into disposable incomes and consumer sentiment, continues to dampen growth in private consumption. On the other hand, the jump in exports was somewhat surprising, helped by strong demand for Malaysia's commodities (Malaysia is the largest net exporter of oil and natural gas in Asia and is also one of the region's most important exporters of rubber and palm oil).

Nevertheless, the Economist Intelligence Unit does not envisage that such a rate of export growth is sustainable. Given the volatility of GDP data, and the lack of a breakdown as to exactly what was behind the jump in exports, we now expect real GDP growth to slow to 5.8% this year, from
6.3% in 2007.

Despite slowing, private consumption growth for the year as a whole will remain robust, underpinned by favourable tax changes announced in the 2009 budget. However, given the latest global commodity-price data, which show significant downward adjustments (as
unit supply and demand imbalances have lessened), we now expect real GDP
to grow by 5.6% in 2009.

From the supply side, the services sector will continue to play an important role in 2008-09 as wholesale, retail trade and restaurants are bolstered by household spending and (to a lesser degree) by tourism.

Government measures to develop tourist attractions in each of the country's five development regions will help to underpin tourism receipts.

Activity in the construction sector is expected to gather momentum as the authorities begin to implement measures to develop all five development regions, which include states in the southern, northern and eastern parts of peninsular Malaysia as well as the two states in
Borneo. - Business Asia