By Palash R. Ghosh: Subscribe to Palash's RSS feed
August 13, 2010 5:15 PM EDT
Like its other Asian neighbors, Malaysia is often overlooked by the behemoth of China, but this southeastern Asia country has delivered extraordinary economic growth this year.
Ashira Perera, international economist at Capital Economics in London, expects Malaysian GDP to climb by 7.5 percent in 2010 and by 5 percent to 6 percent the following year.
Although demand conditions in major trading partners, the U.S., Europe and China, may weigh on Malaysia's exports and industrial output, an increased focus on trade with other Asian nations could limit the downside, while domestic demand is likely to stay strong as well.
Malaysia’s second quarter GDP, which will be released next Wednesday, will probably slow down a bit from the torrid first quarter advance, but still show a rapid year-over-year expansion.
On an annualized basis, Perera expects second-quarter GDP to climb by 9.0 percent, versus 10.1 percent year-over-year growth in the first quarter.
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“Exports and industrial growth will slow, but domestic demand should remain healthy,” said Perera.
Perera indicated that industrial activity maintained its double-digit year-over-year growth in the second quarter, while services output has also been strong. Merchandise export earnings grew by 22 percent year-over-year, compared to first quarter’s 31 percent year-over-year.
“However, imports have climbed more quickly, and net trade is likely to have been a drag on GDP growth,” Perera added.
The pick-up in imports is consistent with an improvement in domestic demand. Moreover, business confidence remains above long-run average levels and domestic credit growth has stayed high,
which suggests that investment should have climbed at a healthy pace.
On a somewhat negative note, Malaysia's unemployment rate moved up earlier this year, to 3.7 percent in first quarter from 3.5 percent at the end of 2009.
“But this in part reflects better economic conditions enticing more people to look for work,” she explained.
As a consequence of such rapid economic expansion, annual inflation will likely rise in the coming months. However, Perera indicated, Malaysia's central bank, Bank of Negara, has already taken steps to tamp down inflation – she predicts another 25 basis-point rate hike by the Bank to 3 percent sometime this year.
She expects inflation will average 2.5 percent in 2010 and 2.5-3.0 percent in 2011.
Malaysia has been one of the top-performing economies since the end of the World War II and has enjoyed an extraordinary trajectory from poverty to prosperity.
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