Malaysia Economy Expands 5.8%, Beats Forecasts

Malaysia’s economy grew faster than economists forecast in the second quarter, fuelled by stronger consumer spending and a pick-up in manufacturing.

Key Points

Gross domestic product rose 5.8% from a year earlier, after climbing 5.6% in the first quarter, Bank Negara Malaysia said Friday

The median estimate of 26 economists surveyed by Bloomberg was 5.4%

GDP rose a seasonally adjusted 1.3% from the previous three months

Big Picture

Malaysia’s economy is gaining momentum as it grows at the fastest pace in more than two years. The global trade recovery has spurred exports, with Malaysia outperforming its peers in the region as earlier weakness in the currency helped to keep its manufacturing industry competitive. The World Bank raised the nation’s growth forecast in June by the most in East Asia, projecting 4.9% expansion this year.

Central bank Governor Muhammad Ibrahim told reporters in Kuala Lumpur that growth will probably exceed the official forecast of 4.8% this year. The bank last month held its benchmark interest rate at 3% as inflation pressures eased and growth prospects strengthened.

Speaking in general terms, Mr Muhammad said “when economic growth is entrenched, and if inflation is essentially benign, it gives Bank Negara a bit more flexibility in terms of policy.”

“But as far as we are concerned, we will look at the data objectively,” he said. “Our next meeting will be in September, early September, so we will look at it and see where we should move forward.”

Economist Takeaways

“Malaysia’s better-than-expected economic performance was largely driven by private consumption which printed much stronger than we had expected,” said Weiwen Ng, an economist at Australia & New Zealand Banking Group in Singapore. “Although Malaysian exports have undoubtedly benefited from strong global demand and a weaker currency, the improvement has been narrowly concentrated in the electronics segment and geographically to China. These characteristics do question the longevity of the export cycle.”

Market Reaction

The ringgit strengthened after the data, paring its decline against the dollar on Friday. The currency was trading at 4.2960 as of 1.07pm in Kuala Lumpur, taking its gain this year to 4.4%.

The key stock index fell 0.2%.

Other Details

• Consumer spending surged 7.1% in the second quarter from a year earlier

• Government expenditure growth slowed to 0.2% from 6.8%

• Investment held up in the quarter, expanding 7.4% from a year earlier

• Exports climbed 9.6%, while imports rose 10.7%

• Services, the biggest sector in the economy, increased 6.3%