KUALA LUMPUR: Malaysia’s third-quarter economic performance is expected to improve in annual and quarterly terms due to the government’s fiscal and monetary initiatives, on the back of sustained domestic demand against a volatile external trade landscape, economists say.

The country’s latest export figures, which contracted at a larger annual rate, had prompted some economists to revise downwards their estimates for the country’s gross domestic product (GDP), as demand for Malaysian goods could continue slowing on weak consumption in major economies.

Bank Negara Malaysia (BNM) is expected to release the country’s 3Q GDP  numbers tomorrow.

Kenanga Investment Bank Bhd economist Wan Suhaimie Wan Mohd Saidie foresees 3Q GDP contracting at a smaller annual rate of 1% but expanding at 5% in quarterly terms.

Wan Suhaimie, who initially expected 3Q figures to be either flattish or positive on a yearly basis, had revised downwards his estimates given the slow recovery in the global trade environment in major economies, hamstrung by high unemployment and low consumer confidence.

“Malaysian export numbers came in worse than expected. Overall, 3Q GDP numbers are better than 2Q and 1Q. We have gone through the worst,” he told The Edge Financial Daily in a telephone interview.

In a recent note to clients, he wrote that the economic prowess of China might not be enough to compensate for weaker demand in the United States.

Meanwhile, Bank Islam Malaysia Bhd chief economist Azrul Azwar foresees Malaysia’s GDP contracting at a smaller annual rate of 2.7% in 3Q.

Azrul said despite weaker export and industrial output numbers, domestic demand was sustained to a certain extent by the government’s fiscal spending and accommodative monetary policies.

“This has helped us from experiencing an even harsher economic contraction. GDP performance in 3Q year-on-year (y-o-y) should be better than 2Q y-o-y. Exports remained in a slump,” Azrul said.

A recovering global economic landscape has convinced economists that Malaysia may have seen the worst in 1Q09, prompting some to price in positive numbers for the country’s GDP as early as 4Q.

Looking ahead, Wan Suhaimie anticipates 4Q GDP to rise by 2.8% y-o-y, resulting in a full-year contraction of 2.1%. He had previously expected a smaller GDP contraction of 1.3% in 2009.

Azrul, meanwhile, foresees 4Q GDP expanding 5% y-o-y. For the whole of 2009, the country’s economy is expected to contract 3.1% before growing 2.6% in the following year.

Malaysia’s economy contracted at an annual pace of 3.9% in 2Q but registered a 4.8% expansion in quarterly terms. 1Q GDP declined by a yearly rate of 6.2% and in quarterly terms, shrank by 7.7%.

The government is now projecting that in 2009 the country will post a GDP contraction of 3%, compared with earlier estimates of a 4% to 5% decline. In 2010, the country is expected to register an economic expansion of between 2% and 3%.

For comparison, estimates by the International Monetary Fund indicate that Malaysia would post a real GDP contraction of 3.6% in 2009, before growing 2.5% the following year.

The nation’s exports fell by an annual pace of 24.2% to RM47.2 billion in September this year, the 12th consecutive month of decline due to less demand for electrical and electronic, palm oil and petroleum-based products. Imports declined 20.2% to RM38 billion.

The industrial production index, which measures the country’s manufacturing, mining and electricity output, fell by a yearly magnitude of 6% in September for a cumulative nine-month contraction of 10.8%. Against the previous month, September figures fell 2.4%.

BNM has slashed the overnight policy rate by a cumulative 150 basis points since November last year. The central bank maintained interest rates at 2% at its five previous Monetary Policy Committee meetings since April this year. BNM will release its next monetary policy update on Tuesday.

Meanwhile, according to a Reuters poll of 15 economits, GDP probably contracted 2% from a year earlier.

“Inflation is not a concern. There is no domestic source of inflation. Everyone cut rates early in 2008 but Bank Negara cut only at the tail end of the year so it will probably hike rates much later than everyone else,” Standard Chartered economist Alvin Liew told the newswire.


This article appeared in The Edge Financial Daily, November 19, 2009.