ASEAN KEY DESTINATIONS
Malaysia Q2 GDP expands 6.4 %
MALAYSIA’S economy grew 6.4 per cent in the second quarter, faster than expected, as exports kept up their strong performance and consumer spending stayed buoyant despite steps by the central bank to curb high household debt levels.
The stronger than expected figure will firm expectations that the central bank could follow up July’s hike in interest rates - the first in three years - with another as early as next month in order to dampen household debt. The Malaysian ringgit extended its gains to hit a high of 3.1635 against the dollar after the GDP data was released.
Gross domestic product in the April-June period showed the strongest growth since the last quarter of 2012, having accelerated from 6.2 per cent in the first quarter. A Reuters poll of analysts had forecast Malaysia’s gross domestic product would grow 5.8 per cent in the second quarter.
Other data released showed the current account surplus narrowed in the second quarter as imports grew more slowly and exports remained brisk.
“The very strong export performance was better than expected,” Bank Negara Governor Zeti Akhtar Aziz told a news conference. “It’s very likely that the overall growth for the year will exceed growth projections made earlier.”
The central bank has a forecast range of 4.5 per cent to 5.5 per cent for full-year GDP.
Zeti added that the central bank’s efforts to curb consumer debt were working as intended, noting a recent “moderation” in household debt.
“If we were to be overly stringent in our policies it will result in an over adjustment,” she said.
To curb the ballooning household debt, which hit 86.8 per cent last year, the central bank raised its interest rate from three per cent to 3.25 per cent in July.
Many economists believe it will have to do more to dissuade borrowers, though they differ over the timing of a likely increase in interest rates, with views ranging from anytime between next month and next year.
“This definitely provides more room for Bank Negara Malaysia to hike the interest rate,” Irvin Seah, an economist with DBS in Singapore, said of the strong GDP figures.
“From Malaysia’s perspective, all cylinders are firing - exports improving, domestic growth is strong, and that certainly calls for tighter monetary policy.”
The current account surplus narrowed to 16 billion ringgit (US$5 billion) from 19.8 billion ringgit in the previous quarter.
Exports from the trade-dependent Southeast Asian nation rose 8.8 per cent in the quarter, led by sales of electronics and manufactured products, outstripping the 7.9 per cent rise in the first quarter. Import growth slowed to 3.9 per cent from 7.1 per cent in the first three months of the year.
Economists expect the current account surplus to narrow further in the second half of the year as the government’s infrastructure spending picks up with implementation of several projects that will raise demand for imports.
Double-digit growth in exports during the first half of 2014 has prompted many analysts to revise upwards their expectations for GDP growth for this year, with forecasts ranging between 5.2 and 5.8 per cent.
Tourism, traditionally one of Malaysia’s strong suits, fared less well in the second quarter, due to the shadow cast by the disappearance of of Malaysia Airlines Flight MH370 with 239 people onboard - most of them Chinese nationals.
Tourist arrivals from China slumped in the wake of the baffling tragedy, Malaysian officials have said. But the services sector still grew a brisk 6.0 per cent from a year earlier.--Reuters
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