Thursday, 22 August 2013

Bank Negara revises downwards Malaysia's GDP to 4.5~5.0% for 2013, Currency volatility manageable, Current account slumps

KUALA LUMPUR: 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 ongoing 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.

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.

Zeti and other Bank Negara officials during the Second Qtr 2013 GDP press conference in Kuala Lumpur on Wednesday. - Sia Hong Kiau/The Star 

On another note, Malaysia’s inflation, as measured by the increase in consumer price index (CPI), remained modest in the second quarter of the year. The CPI grew 1.8% y-o-y, compared with 1.5% y-o-y in the preceding quarter, due to price increases in the food and non-alcoholic beverages and housing, water, electricity, gas and other fuels categories

-  Contributed by CECILIA KOK  cecilia_kok@thestar.com.my

Malaysia can manage currency volatility 

KUALA LUMPUR: Malaysia had the capacity to manage its currency volatility, Bank Negara said, as it brushed off concerns of an Asian contagion risk.

“We had demonstrated our ability to handle such a weakness at the height of the global financial crisis in 2008/09, and therefore, would be able to do the same in the current environment,” the central bank governor Tan Sri Dr Zeti Akhtar Aziz said at a press conference.

In highlighting Malaysia’s strengths that would enable it to deal with the present volatility, Zeti said: “Firstly, we have strong intermediaries, and a well-developed financial market.

“Our bond market is one of the largest in South-East Asia, and we have a strong presence of institutional investors who can absorb any selling of our Malaysian Government securities. In addition, our reserves level currently is at its strongest ever and we have a low level of external indebtedness.”

In line with the performance of some regional currencies, Malaysia’s ringgit has weakened against the currencies of major economies in recent months.

Year-to-date, for instance, the ringgit has fallen around 7.7% against the US dollar to close at 3.2947 per US dollar yesterday, compared with 3.0580 per dollar at the start of the year.

Said Zeti: “We are seeing highly destabilising capital flows and this is within our expectations because we had earlier seen huge inflows into our financial system, as experienced by most emerging markets, when quantitative easing (by major developed countries) took place. We received something like RM70bil in inflows in search of higher returns.

“Now that there are discussions on tapering the quantitative easing, some of these funds would return to their respective economies, in particular, the United States. We expect that there would be reversals (of capital).

“This is not the first time we are seeing this phenomenon. Previously, at the height of the financial crisis in 2008/09, we also saw huge surges of capital flows. But then, deleveraging set in (as major developed nations attempted to reduce their indebtedness), which resulted in a significant reversal of funds, and that precipitated a depreciation in our currency and a significant decline in our reserves.

“But we demonstrated during that time that our financial system was able to cope with this (volatile condition), and therefore, we would be able to do the same in the current environment,” Zeti said.

She added that when global economic recovery improved further, the country’s financial markets would eventually move to reflect fundamentals.

“Our domestic economic fundamentals are strong. We have been able to have strong and resilient domestic demand, which grew at 7.2% year-on-year during the second quarter of this year.

“The private-sector investment is still growing at double-digit rates and investment activities are still holding up well. We have low price pressure in this environment and our labour market conditions remain stable,” she said.

Malaysia's Current Account Slumps In Q2, GDP Growth Picks Up 

KUALA LUMPUR: Malaysia's current account surplus plunged in the second quarter on weakening exports, overshadowing a slight acceleration in economic growth and highlighting the country's vulnerabilty to market selloffs that have rocked several other Asian economies.
The Indian rupee hit record lows this week and Indonesia's stock market and currency plunged on concerns that their worsening current account deficits left them exposed to an expected withdrawal of U.S. super-loose monetary policy.
Fears that Malaysia and Thailand could join that club have pushed their currencies to multi-month lows in recent days, raising concern that the market contagion could spread to economically healthier countries in Southeast Asia.
Data on Wednesday confirmed that Malaysia's current account surplus is evaporating fast, falling to 2.6 billion ringgit ($790 million) in the second quarter from 8.7 billion ringgit in the first three months and 22.9 billion ringgit before that, reflecting plunging exports and solid imports.
Still, the decline was not as much as some economists had fears.
Economic growth accelerated slightly to 4.3 percent in the April-June period from a year earlier, helped by pre-election government spending and a pick-up in activity after the May polls, but fell well short of economists' expectations of 4.9 percent.
In a nod to the deteriorating growth prospects, the central bank cut its forecast for full-year growth to 4.5-5.0 percent from 5-6 percent.
Malaysia, which is heavily dependent on its exports of commodities such as palm oil, could soon be recording its first current account deficits since the 1997 Asian financial crisis.
"I think the era of strong double-digit current account surpluses is over," said Lee Heng Guie, an economist at CIMB Investment Bank in Kuala Lumpur.
"Unless an export recovery materialises and is supported by a revival in commodity prices, the surplus will still be narrowing for the next two years."
CAPITAL OUTFLOWS
Central bank Governor Zeti Akhtar Aziz said that Malaysia was expected to maintain a current account surplus this year, and could cope with the current "highly destabilising" capital flows.
"This is not a new phenomenon. We coped with it before," she said, adding that the economy was expected to remain supported by strong domestic growth.
Sales of Malaysian bonds by foreigners, who hold almost half of the country's government debt, could be absorbed by Malaysian institutions including the insurance industry, she said.
Other data on Wednesday showed that inflation ticked up to 2.0 percent in July from 1.8 percent in June, in line with market expectations.
Manufacturing output rose 3.3 percent in the second quarter after subdued growth of 0.3 percent in the first, while mining activity picked up 4.1 percent after shrinking in the first three months of the year.
Many businesses put investment plans on hold in the first quarter ahead of the tense national election in May that was narrowly won by the long-ruling National Front coalition.
Investment has been rising strongly as Prime Minister Najib Razak pushes through his $444 billion Economic Transformation Programme aimed at doubling per capita incomes by 2020, but that has also pushed up imports, undermining the current account.
While economists note that Malaysia has a much stronger external position than Indonesia, its weaknesses include a stubborn fiscal deficit, a relatively high government debt of 53 percent of GDP and one of Asia's highest household debt levels.
Najib faces a possible leadership challenge from within his ruling party in October, raising uncertainty over his pledge to cut the budget deficit of 4.5 percent of GDP. He has pledged to announce steps to improve the fiscal position in his budget address in October.
Malaysia's ringgit has tumbled more than 7 percent this year to three-year lows around 3.3 to the dollar and is among Asia's worst performers this year. On Wednesday, it weakened further ahead of the data, falling 0.2 percent to 3.2940.
"It is just a liquidity event that hurt everyone," Abdul Farid Alias, the chief executive of Malayan Banking Bhd (Maybank), Malaysia's biggest bank by assets, told reporters on Wednesday.
"The fundamentals of the economy in Malaysia, of our organisation, remain strong."
The Malaysian data follows Thai gross domestic product figures released on Monday that showed a surprise contraction in second-quarter growth, partly due to weakening exports.
Regional economies have built up hefty foreign reserves and sharply reduced foreign currency debt since they were devastated by the Asian financial crisis in 1997, making them less vulnerable to flighty foreign capital.
Data from the Bank for International Settlements shows Malaysia has enough reserves to cover four times its short-term external debt, while Thailand has 6.8 times. Indonesia has only 1.7 times.
Kelvin Tay, regional chief investment officer Wealth Management Southern Asia-Pacific, said that while Asian debt levels had risen since the 2008 financial crisis, they were mostly sustainable because of higher growth rates.
"We have actually gone up (in debt) but don't forget the economies here are at growing at 6.5-7 percent as a whole," he said. "If you have growth of that kind of level you can certainly sustain the debt levels. If your growth falls to 4-4.5 percent then, yeah, you are in trouble."
Malaysia's central bank left its key policy rate unchanged at 3.0 percent at its last meeting in July, but warned that the weak global environment may hurt growth prospects. However, a pick-up in inflation and further weakness in the currency could prompt it towards a tightening bias- Reuters 
Malaysia-Market Factors To Watch On Aug 21

NEW YORK: Following is a list of events in Malaysia as well as news company-related and market news which could have an influence on the Malaysian market. 

GLOBAL MARKETS-U.S. bond yields retreat from 2-year peaks; Wall St recovers SE Asia Stocks- Indonesia near year-low; Thai stocks drop 2 pct WHAT IS HAPPENING IN MALAYSIA, IN TIMES LOCAL FOLLOWED BY GMT: Statistics Department releases July 2013 Consumer Price Index at 1700pm (0900). * Bank Negara Malaysia releases second quarter 2013 GDP at 1800pm (1000). Central bank governor Zeti Akhtar Aziz holds press conference earlier at 1545pm (0745). Malaysia Airlines' Business Plan update, Malaysia Airlines Academy, Kelana Jaya, 1200 pm (0400). Maybank Group half-year financial results announcement, Menara Maybank, Kuala Lumpur, 1300pm (0500).
MARKET NEWS
Nikkei tumbles to 7-week low on Fed uncertainty, emerging mkt fears US STOCKS-Wall St bounces to end four-day skid; retailers gain TREASURIES-Yields fall as buyers step in, emerging markets roiled FOREX-Dollar slides against euro and yen ahead of Fed minutes; PRECIOUS-Gold turns higher as dollar down ahead of Fed minutes; U.S. oil drops on pipeline outage, contract expiration; VEGOILS-Palm oil eases after rally, export demand caps losses.
MALAYSIA IN THE NEWS: PREVIEW-Malaysia Q2 GDP seen growing but current account in focus Malaysian planter Kulim's offer blocked for London-listed New Britain Malaysia's Aug 1-20 palm oil exports up 12.3 pct -SGS Malaysian Airline posts Q2 net loss of 175.98 million ringgit Muslim Rohingya asylum seekers escape Thai detention centre Malaysia's Aug 1-20 palm exports up 10.3 pct -ITS - Reuters

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